Foreign Exchange Management

Too often foreign exchange is seen as a two dimensional, zero-sum equation where, by definition, one party to a foreign exchange contract must lose. In reality a company’s foreign exchange exposure is often much more subtle and reveals itself in different ways.

A German client thought it had a EUR/USD exposure on the product it was exporting to the US. However, analysis revealed that the company’s true exposure was to the EUR/GBP rate because its main competitor was a UK company. By analysing and understanding this the company’s US sales increased significantly.

Another UK client found its products being returned with greater frequency than they would have liked. On probing it was discovered that the company was under instructions from the CFO (who had once ‘lost’ money on a foreign exchange contract) to buy from suppliers only in GBP. The quality of the company’s product relied crucially upon one small but vital part and the best quality of this part was found in Italy. Unfortunately the CFO of the Italian supplier had as much appreciation of the subtlety of foreign exchange as his UK counterpart and refused to sell in anything other than EUR. Thus a foreign exchange exposure was translated into an inferior product.

Working with our clients we help them to understand the true nature of their foreign exchange risks and how the markets can be used to absorb their risks and allow the client to concentrate profitably on their underlying commercial business.

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