HOOPP uses currency hedging to offset a potential change in the value of a foreign investment caused by currency fluctuations. (Currency fluctuations are a factor when the value of a foreign investment is converted back into Canadian dollars.)

In simple terms, currency hedging reduces or eliminates the risk associated with currency fluctuations. It does this by converting some or all of an investment’s foreign currency exposure (based on the currency in which an investment is denominated) back into Canadian dollars (the currency in which HOOPP benefit payments are made) at a fixed rate of exchange.

This conversion is managed through the use of contracts that:

• lock in the price for a future currency purchase or sale
• transfer the currency risk to another investor

Under HOOPP’s currency policy:

• 50 per cent of any foreign equity exposure must be hedged back into Canadian dollars
• 100 per cent of any foreign fixed income exposure must be hedged back into Canadian dollars

During 2007, currency hedging had a significant impact on the bottom line. This is because HOOPP was able to use currency hedging to moderate the impact of a rising Canadian dollar. As an example, U.S. equities ended the year positive in U.S. dollars, but slightly negative when converted to Canadian dollars. Without hedging, the results would have been even more negative.