Exporters Seek Ways to Manage Currency Risk
April 2009
Tough global economic conditions have resulted in numerous challenges for Australian exporters.There is now a strong incentive to effectively manage all commercial risks in order to protect margins and maintain business competitiveness. Exchange rate volatility is a key risk exporters cannot ignore. By implementing an appropriate hedging strategy currency risk can be mitigated.
Currency fluctuations represent an ongoing source of concern for many Australian exporters. From March 2009, the Australian dollar has appreciated by more than 20% against the USD. This volatility has been replicated in many other currency pairs. For Australian businesses selling internationally this exposes them to reduced earnings after the conversion of foreign currency revenues back into AUD.
Although there is no one size fits all approach to currency hedging the following 8 step plan provides a sound commercial framework:
1. Define corporate philosophy and objectives
2. Identify exposures
3. Quantify exposures.
4. Develop and define risk management policies and procedures.
5. Identify strategies to manage risk.
6. Execute strategies.
7. Monitor exposures and hedges.
8. Review and manage performance.
Based on the above, exporters can employ a range of financial instruments including forward exchange contracts, currency options and related structured derivatives to meet their specific hedging objectives.
To maximise the effectiveness of any hedging strategy, a robust international payments platform is required that can utilise these hedges to make or receive payments in an integrated way. There are payment platforms that simplify administration, introduce greater automation and reduce errors, allowing businesses to spend less time managing their foreign transactions and more time managing their business.
Travelex’s GlobalPay platform is a foreign exchange and payments application that integrates into an organisations treasury and payments systems and processes, allowing organisations to integrate what are sometimes disparate processes. In use by thousands of organisations across the world, GlobalPay has helped companies reduce cost and complexity associated with international payments (without impacting existing banking relationships) allowing companies to focus on their core business.
This information has been prepared without taking account of any reader’s objectives, financial situation or needs. Any reader should therefore, before acting on this information, consider the appropriateness of the information, having regard to their own organisation’s objectives, financial situation or needs.
