Every company doing business internationally has FX risk, whether it be assets (A/R), liabilities (A/P), or expected future cash flows. The value of these balance-sheet items will vary considerably as exchange rates move. This creates multiple management challenges, including:
Assets, liabilities and owners' equity measured in a company's functional (home) currency can vary dramatically as non-functional currency balance sheet items are re-measured monthly. This in turn affects company valuation and shareholder value.
As a company considers new projects, the ability to fund them with current income is limited by the level of cash flow uncertainty generated by exchange rate volatility, which can limit a company's growth potential.
Similarly, when a company turns to the credit markets to finance projects, mitigating FX risks will decrease the volatility in owners' equity. Numerous studies have shown that companies that do hedge enjoy a lower cost of capital. Often, lenders will require certain risks (e.g., FX risk or IR risk) to be hedged in order to close a loan or bond issue.
All of these problems can be avoided by implementing a properly-designed hedging program focused on reducing risk. Companies attempting to predict spot rates increase risk and uncertainty; even professional forecasters exhibit a quarterly standard error of 10%.
Contact CRM to learn how you can increase liquidity, shareholder value and company credit by implementing our robust, effective FX hedging program.
"We'd be lost [figuring out hedge derivatives] without you." - Treasurer, publicly-listed Filipino company
"I have very much enjoyed working with CRM, and while there are no guarantees in the world of 'high finance', I completely trust CRM to give us the best shot at protecting our bottom line, and even making some additional non-operating profit along the way. If you're dealing with currency risk management, CRM should be part of your equation." - President, Liquid Planet Holdings
