itsual FX and Currency
Overview
FX moves can erase operating gains. Currency management identifies exposures, sets policy, and implements hedges proportional to risk and expertise.
When to Use
- Multi-currency revenue or costs
- Cross-border expansion
- Designing FX policy and hedge programs
- Explaining FX impacts in results
Core Practices
- Identify transaction, translation, and economic exposures
- Measure net exposures by currency and horizon
- Set policy: what is hedged, by whom, with what instruments
- Avoid speculative hedging dressed up as risk management
- Report FX impacts separately from operating performance when material
Principles
- Hedge risk you understand; don’t invent complexity
- Natural hedges (matching currency revenue and costs) come first
- Accounting hedges and economic hedges are not always the same
- Policy beats ad-hoc trader heroics
Verification
- Material exposures are identified and measured
- Policy defines what is in/out of scope for hedging
- FX results are explainable in management reporting