FX on the Front Page & in Your Bottom Line
Turning on the news these days is not much fun. From strife in the Middle East to brewing tensions in Ukraine to economic uncertainty in Japan to rampant concern about the Eurozone itself, bad news is seemingly everywhere.
Some of it is truly tragic. Some of it is scary. And if you’re doing business overseas, all of it can have an effect on your FX gain/loss line.
Global troubles cause currency volatility; they always have, they always will. Everything is connected. For corporations, that means risk — and that can be a bad thing.
If you’re a dollar-functional corporation with holdings in Euros, those holdings lost value when Switzerland unpegged its currency from the Euro early this year. You could have lost money because of factors completely outside your control. Likewise, if the Euro had gone up against the dollar, the value of your Euro assets would have risen … at the cost of investors wondering why your earnings per share figures were so far off. Again — not good, and not your fault.
Fortunately, there is a way to insulate yourself from one of the financial risks associated with global instability: foreign currency hedging. A well-planned, properly executed FX hedge program lets you secure margin and profitability, at relatively little cost to the corporation. Whether a particular currency goes up or down against your functional currency, you know what you’ll pay, and you know what your assets are worth. In short, it’s a rare oasis of predictability in an increasingly unpredictable world.
Now is the time to take control. If you’re doing business overseas and you’re not hedging foreign currency, start. (We’d be happy to help.) If your FX hedge program is up and running, make sure it’s compliant and performing as expected. Otherwise, you’ll be left watching the news and wondering “How will this affect me?”