Risk Management Solutions

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Are you involved in importing, or exporting? Do you have investments or liabilities abroad?  If so, you are likely to be involved in some form of foreign exchange risk.  Our dedicated Global Markets Team can help you minimise these risks and make sure your money works harder for you.

Who should be concerned?

• Importers/Exporters who at any one time are required to convert from their base currency in EURO into another currency or vice versa
• Companies repatriating Overseas Dividends or liquidating Overseas Assets denominated in a currency other than EURO into their base currency in EURO
• Companies repaying Overseas Liabilities or paying Overseas Operating Expenses from their base currency in EURO into another currency

Why manage your foreign exchange risk?

• Changes in exchange rates induce changes in the value of a firm’s assets, liabilities and cash flows, especially when these are denominated in a foreign currency
• Therefore, fluctuations in the currency markets have an impact on your outgoing import payments and incoming export funds
• Your foreign exchange risk is influenced by many factors such as length of exposure and currency volatility
• By managing the risk, you could maximize profits or minimize the risk

Where do these foreign exchange exposures come from?

• Trade – Drawdown and Repayment of Import/Export Foreign Currency Loans and payments of Import/Export Bills denominated in foreign currencies
• Inward and Outward Remittances denominated in foreign currencies
• Overseas Dividends, e.g. repatriating overseas profit home and Overseas Operating Expenses, e.g. paying overseas employees’ salary expenses
• Overseas Assets, e.g. surplus cash balances of overseas subsidiaries and Overseas Liabilities, e.g. foreign currency borrowing

How exposed is your business?

• Estimate the total value of all your business components that are exposed to foreign exchange risk
• Then calculate what would happen to your profitability when there are changes in the respective exchange rates
• Also, consider the timing of your payables and receivables and estimate the potential impact of exchange rate fluctuation on your profit and loss over such time (example 30, 60 or 90 days)

What can you do to minimize the foreign exchange risks?

• Spot Contracts - A binding contract to buy or sell a specific amount of currency at the current market rate for settlement in two days time
• Forward Contracts - A binding obligation to buy or sell a specific amount of currency at a predetermined rate. Settlement can be agreed on a fixed date (fixed delivery contract) or any day between two agreed dates (optional delivery contract)
• Currency Options - This gives you the right, but not the obligation to buy or sell a specific amount of currency on a predetermined date in the future, keeping a chance to benefit from favourable market movement