GLOSSARY

It is independent of concrete hedging decisions and serves as a benchmark for strategic and tactical overlays. 7orca uses agnostic benchmarks in the holistic FX Overlay, to measure manager performance transparently and comparatively.

This mapping is crucial for risk- and strategy-appropriate hedging. 7orca analyses FX risks at the asset level, for example in illiquid alternatives or liquid mutual funds.

It is subject to regulatory requirements (for example, HGB, IFRS) and may vary depending on the reporting date and valuation rules. Institutional investors must take this rate into account when designing FX strategies and reporting processes.

It serves as the reference value for converting all foreign currency positions. In institutional currency management, the base currency provides the foundation for risk reports, performance attribution, and hedging decisions.

The bid rate is generally lower than the ask rate and therefore impacts the settlement of currency transactions. For investors, a transparent comparison of bid conditions is a key component of cost control in FX management.

It is frequently used when investments, dividends, or fees are planned in foreign currency. Institutional investors use cash flow hedging to secure budgets and ensure planning stability.

The goal is to hedge counterparty risks and ensure compliance with regulatory requirements. 7orca supports investors in integrating FX hedges into existing collateral processes and monitors cash flow risks using CF@R models.

It occurs primarily in illiquid markets or under capital controls. Institutional investors mitigate such risks through targeted market selection and liquidity analysis.

It occurs primarily in illiquid markets or under capital controls. Institutional investors mitigate such risks through targeted market selection and liquidity analysis.

For instance, an investment may be converted from GBP to USD without involving EUR (the base currency). Cross currency transactions require specific FX pairs and impact exposure and liquidity management.

These include fixed ratios, moving averages, or market fixings. Benchmarks provide comparability and facilitate the evaluation of manager decisions.

Options allow for asymmetric risk profiles with limited loss potential. They are a strategic component of institutional currency management, particularly in times of uncertainty or market risk.

A delta-neutral portfolio responds only minimally to small price changes in the underlying currency pair. This technique is used in derivative applications (for example, options) to manage risks in a targeted manner.

It arises when foreign investments are devalued due to exchange rate fluctuations. Institutional investors counter this risk with targeted hedging strategies and active management of FX exposures.

It represents the actual remaining market-relevant risk of a portfolio. Managing the effective FX exposure is a core
objective of any overlay strategy.

An ensemble combines multiple algorithmic strategies to offset potential weaknesses of individual components. 7orca deliberately employs this approach to make its products more robust and adaptable.

Such financing arrangements create open FX exposure and may trigger hedging requirements. They play a currency-relevant role in institutional structures, such as private debt or infrastructure.

This is achieved, for example, through forward contracts, options, or structured solutions. Institutional investors use these instruments to hedge cash flows, valuations, and portfolio positions against currency risks.

An FX liquidity buffer is a deliberately allocated liquidity position in the base currency, used to cover currency hedging transactions and provide collateral at short notice. It enables institutional investors to implement operational adjustments, such as rebalancing or changes in exposure, flexibly and without disrupting portfolio management.
7orca incorporates the FX liquidity buffer into the overlay architecture and tailors its size to the volatility, hedging frequency, and cash flow structure of the mandate.

The objective is to stabilise or deliberately influence an exchange rate. Such interventions should be monitored by investors and taken into account in tactical decision-making.

It shows the absolute total of open currency positions, regardless of their direction. In currency management, it is a key metric for assessing hedging requirements.

This includes FX strategies, processes, systems and contracts. 7orca implements individual hedging architecture with clear responsibilities, regulatory conformity and technical robustness.

Such limits control the extent of risk hedging. They form part of the investment guidelines and risk parameters
of institutional investors.

Examples include fees, interest, or cash flows denominated in foreign currency. 7orca takes such indirect risks into account as part of a comprehensive exposure management approach.

It builds confidence in the security, reliability, and quality of outsourced processes. 7orca holds a certified ISAE 3402 Type II accreditation for all overlay-relevant processes.

It is a key determinant for risk, performance, and regulatory metrics. The entire FX management process is based on deviations from this reference currency.

This is done, for example, by comparison to the original benchmark or through isolated PnL attribution. 7orca enables clients to take a differentiated view of tactical and strategic manager performance.

It affects cash flows, accounting dates, and rollover costs. A balanced structure avoids concentration risks
and ensures predictability.

A breach can, for example, have regulatory consequences. 7orca takes such thresholds into account in the overlay design of institutional mandates.

Interest rate changes, interventions, or forward guidance have a direct impact on FX valuations. Investors must interpret these signals and translate them tactically into FX strategies.

This includes broker connections, order management systems, and data interfaces. 7orca ensures full technical trading capability during the onboarding phase before the mandate begins.

It can be based on economic, accounting, or regulatory requirements. 7orca aligns all FX Overlay strategies with a clearly defined target structure.

FX effects are analysed separately, both from hedged and open positions. 7orca provides institutional clients with transparent FX attribution in overlay reporting.

This analysis enhances transparency and allows clients to make a differentiated assessment. 7orca routinely provides both perspectives in its reporting.

This is carried out regularly or on a signal basis through adjustments to hedging ratios, a central control element in the active currency management of institutional investors.

FX risks are explicitly managed as a separate budget item. 7orca integrates FX budgets into the overlay process, aligned with target returns and risk appetite.

Spot FX transactions are typically settled with a value date two business days after the trade. They form the basis of operational FX management and are used for the short-term conversion of currency positions.

It can impact currency stability and convertibility. In FX management, country risk is incorporated into the selection of tradable currencies and risk analyses.

They serve risk provisioning and regulatory reporting purposes. Upon request, 7orca conducts customised FX stress tests tailored to the mandate, regulatory requirements, and exposure structure.

It can be based on a daily fixing (for example, WM/Reuters 16:00) or on bank-specific quotes. A uniform definition of the valuation rate ensures comparability and consistency across investment vehicles.

Asset class-specific characteristics, for example, regarding liquidity, volatility, valuation frequency, etc.

This structure suits institutional investors and is implemented at 7orca, for example, in the FX Overlay through a combination of various components.

It should be chosen independently of the market and consider possible regulatory requirements. It forms the basis for measuring manager success in the 7orca Holistic FX Overlay.

It is the deviation of the market-traded FX forward rate from the theoretical FX forward rate.

In the overlay context, such patterns (for example, herding behaviour) help identify market anomalies.

To illustrate, possible benchmarks can be represented as follows:

• Benchmark: 0% Hedged (Unhedged), that is, no hedging as a comparison standard for the FX hedging strategy of the currency pair.
• Benchmark: 100%/75%/50%/XX% Hedged, that is, full hedging or a percentage gradation as a comparison standard for the FX hedging strategy of the currency pair.

7orca counters cash drag through targeted cash equitisation in the FX Overlay segment.

The aim is to avoid cash drag and achieve the target investment quota.

It is used for sizing liquidity reserves and planning margin requirements.

It demonstrates the actual effect of overlay management in the context of underlying currency risk and allows transparent evaluation of added value compared to the benchmark.

It stabilises valuation results, for example, at year-end or month-end.

They help to avoid unnecessary transactions and reduce transaction costs.

It is an integral part of the control system in 7orca’s overlay process.

In the FX Overlay, fixing serves as a reference point for valuation and settlement of hedging transactions, especially in the context of benchmark specifications and best execution.

The forward rate is the exchange rate at which two different currencies are exchanged at a specified future date within a forward foreign exchange transaction.

This component is particularly part of the 7orca Active and 7orca Holistic FX Overlays.

They offer high flexibility in terms of maturity and volume but require counterparty management and appropriate contracts (for example, ISDA).

They provide high transparency and regulatory advantages but are less flexible than forwards.

It is a central element of 7orca’s tactical models and is used to generate signals for adjusting the hedge ratio.

It enables not only pure hedging but also the generation of additional returns through an asymmetric return/risk profile.

FX pegs influence the choice of hedging strategy, especially in strategic hedging.

This procedure takes into account the specifics of each currency and performance characteristics, as well as the underlying assets and the individual requirements and allocation of the respective investor.

Depending on the strategy (passive, active, holistic), it is managed statically, tactically, or strategically-tactically.

It regulates legal, operational, and collateral aspects between contracting parties.

It provides clarity on the effect of individual components and is essential for detailed performance analysis of institutional currency strategies.

Illiquid assets (for example, private equity) require alternative frequency and hedging logistics.

This serves transparency and forms the basis for holistic risk management.

It forms the contractually defined basis for hedging activities and serves as a reference for management, reporting, and fee calculation.

7orca uses these simulations, for example, to determine optimal deviation bands for an FX Overlay.

It improves the character fidelity and risk control of the FX Overlay.

This reduces transaction volume, thereby saving costs and making cash more efficient.

Reference values: Total P/L Overlay and Total P/L Benchmark. It quantifies the actual added value of overlay management and is central to assessing the mandate’s effectiveness compared to the reference strategy.

It serves operational separation and targeted management of currency risks.

This figure enables transparent tracking of the hedging intensity per currency and serves as the basis for reporting, management, and regulatory compliance.

It is a core element of the 7orca Holistic FX Overlay and considers regulatory and balance sheet requirements.

It is a central component of the 7orca Active and 7orca Holistic FX Overlays.

The goal is a seamless, cost-efficient transition.

It can be captured through options strategies (for example, covered calls) and is part of the 7orca Active Enhanced Overlay.

It serves as a benchmark for many standard hedging and valuation processes.

A specific benchmark is defined for each currency pair in the portfolio. Examples of possible benchmarks include:

• Benchmark: 0% Hedged (Unhedged), i.e. no hedging as a reference point for the FX hedging strategy.
• Benchmark: 100%/75%/50%/XX% Hedged, i.e. full or partial hedging as a reference point for the FX hedging strategy.

This combined perspective reflects the actual experienced performance and forms the basis for outperformance analysis.

In reporting, the fixing serves as a consistent reference point for valuation rates and comparability across mandates.

Determined daily at a fixed time. It is the rate at which two currencies will be exchanged at a future date under a forward contract.

This figure supports the sizing of hedge volumes and the derivation of the target currency structure per mandate.

This figure supports the sizing of hedge volumes and the derivation of the target currency structure per mandate.

This enables tracking of hedge intensity per currency and comparison with mandate guidelines and benchmarks.

Hedging costs are directly reflected in the PnL.

Changes in the interest spread directly affect forward points and thus impact hedging costs.

It separates the effects of the overlay, exposure, and benchmark, providing transparency on each component’s contribution.

It separates the effects of the overlay, exposure, and benchmark, providing transparency on each component’s contribution.

This figure shows the residual risk after overlay and is key for reporting and risk control.

Reference points: Total P/L Overlay and Total P/L Benchmark.

This figure isolates pure exchange rate effects and serves as a reference point for hedging decisions.

This benchmark-based performance allows direct comparison with the overlay implementation.

This reflects the actual implementation of the hedging strategy and is essential for attribution.

Rolls ensure continuity in the hedge ratio and avoid gaps in the hedging structure.

Determined daily at a fixed time.

Based on a premium-driven and portfolio-optimised approach, reviewed quarterly.

It measures the long-term added value of strategic positioning compared to the base benchmark.

It responds dynamically to market price developments and reduces risk within an asymmetric payout profile.

It quantifies the value contributions from model based adjustments to the hedging ratio.

Tenor selection influences forward points, liquidity requirements, and roll costs.

The valuation start date marks the first day for calculating performance and KPIs in reports and serves as a reference for time series comparisons.

Shifts in the curve affect forward prices via the interest spread and thus influence hedging costs.