How to hedge foreign exchange risk?

17 December 2019

Now more than ever, the volatility of currency markets poses a threat to your profit margins. Rates negotiated in a foreign currency, delays between invoicing and payment, and repatriation of foreign currencies are just a few examples of reasons to be concerned about significant exchange rate fluctuations..

Innovative solutions are out there, however, and they’re more accessible than you might think. At iBanFirst, we believe that all companies deserve the same quality of service often reserved for multinational corporations. That is why we offer a comprehensive range of currency hedging solutions to protect your profit margins and improve the precision of your budgets.

Budgetary concerns affect all businesses, and hedging solutions are just one way you can alleviate such pressures. Global research firms like Gartner have reported on finance professionals’ increasing interest in reducing margin erosion. This issue was listed as one of 2019’s top challenges in the firm’s recent priority poll.

If your company has operations or subsidiaries abroad, or if your business engages in procurement or sales through foreign currencies, then this is one angle you should really consider.

But then there is the question of how to implement the currency hedging solutions on offer?

There are a number of options for CFOs and business owners wishing to lessen the constraints and challenges they find themselves up against when dealing in foreign currencies

  • With a forward contract, for instance, you can freeze the amount of an invoice denominated in a foreign currency, therefore protecting margins and preserving cash flow.
  • Flexible forwards are another solution to consider, as they allow you to keep a foreign currency reserve at a fixed exchange rate for up to 24 months.
  • Businesses can also make use of dynamic forwards, which completely neutralise foreign exchange risk and offer the possibility of capitalising on opportune movements on the currency market.

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