Hedging your foreign exchange transactions creates certainty for your business cashflow.
There are many reasons businesses hedge their foreign exchange risks. This upcoming article examines the recent history of foreign exchange price fluctuations, and models the scenarios faced by importers and exporters generally over the past decade.
Yes - businesses have long been able to avoid hedging risk with one simple technique: they pay their foreign exchange obligations in advance. However, this approach has serious downsides, most commonly the loss of both free cash flow and interest payments during the period that the cash is held overseas. For our American importer, having to pay each bill at the moment the goods are ordered would greatly limit the number of simultaneous transactions that they could engage in, and would harm their business in other ways.
The price of volatility in the last decade has reached a historic low, compared to decades prior. We believe that taking advantage of these all-time-lows in order to hedge currencies for an upfront fee makes sense for the majority of businesses. Please give us a call today to discuss your hedging needs.
Disclaimer: This article is meant to be general guidance only, and should not be taken as financial advice. Seek specific guidance from a qualified professional for your particular situation.
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