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Do you operate internationally and carry out transactions in foreign currencies? Do you want to protect your margins from daily exchange rate fluctuations?
You're in the right place.
This article walks through six practical strategies to manage currency risk and protect your business (without crossing into speculation).
What is currency risk?
Currency risk is the exposure your business faces when it holds, earns, or owes money in a currency other than your own. Exchange rates shift constantly, and even small movements can create significant differences in what you actually pay or receive.
This foreign exchange risk cuts both ways too. On the income side, a payment you're owed might be worth less by the time it arrives. On the expense side, a supplier invoice could cost more than you budgeted. Either way, your margins take the hit.
The three types of foreign exchange risk
International businesses face three main types of FX risk: Transaction, translation, and economic. Each one works differently, and understanding which is which helps you prioritise where to focus.
Transaction risk
Transaction risk occurs when exchange rates shift between the time you agree to a payment and when money actually changes hands. That gap directly affects your cash flow.
For most small and medium-sized multinationals (SMMs), this is the big one. It touches virtually every pending invoice, open contract, and cross-border payment on your books.
Translation risk
Translation risk shows up in financial reporting — specifically when you consolidate accounts across different currencies. It typically affects companies with foreign subsidiaries or significant overseas assets.
This is more of an accounting issue than a cash flow problem. Your operations stay the same, but reported figures shift based on exchange rates at the reporting date.
Economic risk
Economic risk is the long game. It occurs when currency movements affect your competitiveness in international markets over time — influencing pricing strategies, sourcing decisions, and where you choose to expand.
Unlike transaction or translation risk, economic exposure doesn't hit your cash flow directly. It shapes bigger strategic questions about which suppliers to use and which markets to prioritise.
How to assess your foreign currency exposure
Whether directly or indirectly, every company is exposed to currency risk on the foreign exchange market. However, this doesn't mean all companies are in the same boat. Not all situations require you to implement a currency risk management strategy. A company with a one-time exposure to a foreign currency transaction of a modest amount will not handle currency risk the same way as one that regularly operates internationally. So the first step is to carefully analyse your exposure to foreign exchange risk.
To do this, start with a risk analysis. List your assets in foreign currencies (receivables, bank accounts, financial investments, etc.) and your debts in foreign currencies (accounts payable, loans, etc.) in order to evaluate your exposure to foreign exchange risk.
You should also anticipate the evolution of your foreign currency cash inflows and outflows throughout the year. A budget forecast is your best tool to measure your risk exposure. By preparing an accurate budget forecast and analysing the pricing structure of your products or services, you can identify more subtle foreign exchange risk exposures. This will allow you to define a "budget rate", i.e., a weighted average exchange rate at which you plan to convert your currencies during the year.
6 currency risk management strategies for international businesses
Once you understand your exposure, you can choose how to manage it. The right approach depends on your payment patterns, risk tolerance, and how much certainty you need in your cash flow.
1. Hold funds in a multi-currency account
If you're only using standard bank accounts that work with a single currency, every incoming foreign currency payment typically gets auto-converted to your home currency at whatever rate your bank decides.
A multi-currency account lets you hold funds in different currencies without converting them immediately, putting you in control of conversion timing. With a multi-currency account, you can hold US dollars as US dollars (and so on) until the exchange rate moves in your favour, or until you have a USD supplier invoice to pay directly. For SMMs managing payments across multiple currencies, this is foundational.
2. Match your currency inflows and outflows
Matching currency flows means using the same currency for both income and expenses — eliminating the need to convert at all.
If you receive USD from customers and also pay USD to suppliers, you can handle both sides directly without worrying about exchange rates on those specific flows.
This works best when amounts and timing align. But even partial matching reduces your currency exposure. Say you collect $50,000 quarterly from customers and have $30,000 in supplier costs — you can cover those costs directly and only convert the remaining $20,000.
3. Lock in currency exchange rates with forward payment contracts
Forward payment contracts let you lock in today's exchange rate for a future transaction. This removes the guesswork from cash flow planning and protects your margins from currency swings between now and when payment is due.
Think of them as a way to guarantee certainty, not necessarily a trick to find the absolute best rate possible every time. The value comes from knowing exactly what you'll pay regardless of where rates move before the transaction settles.
iBanFirst offers three types of forward payment contracts, each designed for different situations:
Fixed forward payments
A fixed forward payment contract locks in an exchange rate for a specific amount on a specific future date. One rate, one date, one amount. This works best when you know exactly what you'll need to pay and when, like a supplier invoice with a fixed due date.
Flexible forward payments
A flexible forward payment contract locks in a rate, just like fixed forward payment contracts, but lets you draw against it over a set timeframe rather than on a single date. This suits ongoing supplier relationships or variable payment schedules, situations where you know the total amount but not the exact timing of each payment.
Dynamic forward payments
A dynamic forward payment contract gives you a guaranteed protection rate while still letting you benefit if exchange rates move in your favour. This works for situations where you want downside protection but don't want to completely give up the potential for a better rate.
4. Invoice customers in your home currency
Invoicing in your home currency shifts the currency risk to your customer. They handle the conversion on their end, and you receive exactly what you quoted. This approach works well when you have a strong negotiating position, or when your foreign customers are already accustomed to paying in your currency.
The trade-off? It can create friction.
Customers managing their own currency exposure may prefer suppliers who invoice in their local currency. Before defaulting to this approach, consider the competitive dynamics in your market.
5. Build a systematic FX policy for your team
The strategies above work best when they're part of a documented policy — not ad hoc decisions made under pressure.
A clear FX policy defines how your team handles currency exposure based on your commercial margins, the cost of different approaches, and your appetite for risk. Depending on your situation, that might mean:
- Locking in exchange rates on all foreign currency transactions immediately
- Locking in rates on a portion of transactions while leaving the rest exposed
Either way, having a policy means decisions get made consistently, not reactively.
6. Set a regular review rhythm to stay ahead of rate swings
Your business changes over time, and exchange rates change constantly. Regular check-ins keep your approach current. Track your weighted average realised exchange rate, compare it to your budget rate, and assess any gains or losses. This gives you a clear picture of whether your strategy is working.
One thing to keep in mind: The goal is to protect your margins and the financial health of your business, not always to maximise FX gains. Focus on stability rather than speculation.
Get started with iBanFirst to better protect your profit margins
Managing currency risk comes down to visibility, timing, and the right tools. The six strategies above give you a framework, but executing them consistently requires a platform built for international operations.
iBanFirst gives you the infrastructure to put these strategies into practice.
With iBanFirst, you can:
- Hold funds in 25+ currencies and convert on your own schedule
- Lock in exchange rates with fixed, flexible, or dynamic forward payment contracts
- Send and receive cross-border payments with transparent pricing and fast settlement
- Track every payment in real time from initiation through arrival
Currency risk management works best when you have control over timing, visibility into costs, and access to FX specialists who understand your business. Request an account to see how iBanFirst can support your international operations.
