In addition, the Company uses forward contracts, typically with maturities from a few days to less than one year, to offset foreign exchange rate fluctuations on certain short-term borrowings that are payable in currencies other than the U.S dollar. The Company had foreign currency forward contracts outstanding with a notional value of $7.4 million and $216.1 million as of September 30, 2022 and December 31, 2021, respectively, primarily in euro.
Foreign currency exchange contracts - xe Operations
xe writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. xe aggregates its foreign currency exposures arising from customer contracts and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from xe's total portfolio of positions were $22.3 million and $66.5 million for the three and nine months ended September 30, 2022, respectively, compared to $20.1 million and $58.5 million for the same periods in 2021, respectively. All of the derivative contracts used in the Company's xe operations are economic hedges and are not designated as hedges under ASC 815. The duration of these derivative contracts is generally less than one year.
The fair value of xe's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. xe manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering into contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. xe does not expect any significant losses from counterparty defaults.
The aggregate equivalent U.S. dollar notional amount of foreign currency derivative customer contracts held by the Company in its xe operations was approximately $1.0 billion as of September 30, 2022 and December 31, 2021. The significant majority of customer contracts are written in major currencies such as the euro, U.S. dollar, British pounds sterling, Australian dollar and New Zealand dollar.
Balance Sheet Presentation
The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below:
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
(in thousands)
|
|
Balance Sheet Location
|
|
September 30, 2022
|
|
December 31, 2021
|
|
Balance Sheet Location
|
|
September 30,
2022
|
|
December 31, 2021
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Other current assets
|
|
$
|
92,079
|
|
|
$
|
27,582
|
|
|
Other current liabilities |
|
$
|
(85,799
|
) |
|
$
|
(23,285
|
)
|
The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2022 and December 31, 2021 (in thousands):
Offsetting of Derivative Assets
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheet
|
|
|
As of September 30, 2022
|
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Consolidated Balance Sheet
|
|
Net Amounts Presented in the Consolidated Balance Sheet
|
|
Financial Instruments
|
|
Cash Collateral Received
|
|
Net Amounts
|
Derivatives subject to a master netting arrangement or similar agreement
|
|
$
|
92,079
|
|
|
$
|
—
|
|
|
$
|
92,079
|
|
|
$
|
(57,129
|
) |
|
$
|
(6,938
|
) |
|
$
|
28,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives subject to a master netting arrangement or similar agreement
|
|
$
|
27,582
|
|
|
$
|
—
|
|
|
$
|
27,582
|
|
|
$
|
(14,875
|
)
|
|
$
|
(2,284
|
)
|
|
$
|
10,423
|
|
Offsetting of Derivative Liabilities
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheet
|
|
|
As of September 30, 2022
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Consolidated Balance Sheet
|
|
Net Amounts Presented in the Consolidated Balance Sheet
|
|
Financial Instruments
|
|
Cash Collateral Paid
|
|
Net Amounts
|
Derivatives subject to a master netting arrangement or similar agreement
|
|
$
|
(85,799)
|
|
|
$
|
—
|
|
|
$
|
(85,799
|
) |
|
$
|
57,129
|
|
|
$
|
4,495
|
|
|
$
|
(24,175
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives subject to a master netting arrangement or similar agreement
|
|
$
|
(23,285
|
)
|
|
$
|
—
|
|
|
$
|
(23,285
|
)
|
|
$
|
14,875
|
|
|
$
|
640
|
|
|
$
|
(7,770
|
)
|
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.
Income Statement Presentation
The following table summarizes the location and amount of losses on derivatives in the Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021:
|
|
|
|
Amount of Gain (Loss) Recognized in Income on Derivative Contracts (a)
|
|
|
Location of Gain (Loss) Recognized in Income on Derivative Contracts
|
|
Three Months Ended September 30,
|
|
Nine Months Ended
September 30,
|
|
(in thousands)
|
|
|
2022
|
|
2021
|
|
|
2022
|
|
|
|
2021
|
|
Foreign currency exchange contracts - Ria Operations
|
|
Foreign currency exchange gain (loss), net
|
|
$
|
(7,402)
|
|
|
$
|
3,915
|
|
|
$ |
(689)
|
|
|
$ |
1,447 |
|
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its xe operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above.
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.