The Benefits of Hedging, and Managing FX Risk: Part 1

Many small- and medium-sized firms engaging in import and/or export activity tend not to hedge. The reasons not to hedge come in all shapes and sizes: it’s too complex; it’s too costly; there’s a misconception that it is speculation; or even that that firms don’t know about hedging tools and strategies available to them.

Explaining Different Types of Exposure Risk

Importers and exporters alike face foreign exchange risk, or currency risk, when engaging in economic activity outside of their domestic currency. As explained in an earlier blog post, currency risk materializes for exporters when exchange rate volatility results in the company repatriating fewer revenues abroad, when the domestic currency strengthens relative to the foreign currency. For importers, this risk is the exact opposite: currency risk materializes when the domestic currency weakens relative to the foreign currency.

An Introduction to Currency Risk for Importers and Exporters

Import and export companies face the daunting task of dealing with foreign exchange risk that can easily alter revenues from overseas; with smaller cash reserves, exchange rate fluctuations can be the difference between profits and losses.

Just what is an interest rate swap?

One of our team was recently asked to give a simple overview of interest rate swaps and how they work. Below was the explanation we put together, using a comparison between an interest rate swap to a fixed-rate bank loan to illustrate the key characteristics.

We think it is a nice, concise and clear way to explain interest rate swaps so thought we would share it. Comments welcome.

The GFC, Corporate Governance and Hedgebook…

In the wake of the Global Financial Crisis (GFC), Corporate Governance has become a key focus, not just for large organisations but for small to medium sized entities as well. Corporate Governance relates to the…

When to use zero-premium FX collar options as the method of hedging

For importers and exporters managing trade-related transactional FX exposures, the choice of hedging instrument is just as important to overall performance as tactical/strategic risk management decisions to position at the minimum or maximum of hedging…

Judicious use of FX orders to get hedging in place

Once a company with foreign exchange risks has decided to lift or reduce hedging percentages as part of their risk management strategy, value-enhancing market dealing tactics to get the hedging entered at more favourable exchange…

Some things never change – especially in financial risk management…

It always surprises me with treasury management how much changes and yet how much stays the same. Having been in the treasury game for almost 25 years the basics remain the same – it’s all…

Is your beloved spreadsheet costing you a fortune?

Why is it that we love our spreadsheets so much? They are labour intensive, they’re often very complex and we all know about the risk of errors, yet we continue to nurture and protect our…

What to know about IFRS 7 and IFRS 9

IFRS, International Financial Reporting Standards, has a mission of increasing financial statement readability and disclosure requirements. Profit and loss reporting plus risk management strategies play essential roles in both IFRS 7 and IFRS 9 rules….

Navigating these stormy economic waters

Many exporters confuse foreign exchange management with trying to predict where the currency is going. The reality is that no one knows where the currency is heading today, tomorrow, next week or next year. In…

Making business easier…

Well Hedgebook is officially underway. That feels good. Isn’t it great when a good idea comes to fruition. Heaven knows most of them don’t…And as they say, its often the simple ideas that turn out…