Foreign Exchange Risk Management

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By managing the risk, you could maximise profits or minimise the risk.

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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 maximise profits or minimise 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

Who should be concerned?

  • Companies repatriating Overseas Dividends and/or paying Overseas Operating Expenses
  • Importers/Exporters
  • Companies liquidating Overseas Assets and/or repaying Overseas Liabilities

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 minimise the foreign exchange risks?

Foreign Exchange - Spot FX
HSBC offers real-time cross foreign exchange rates via online banking to add flexibility to your international business operations.

Forward and Par Forward
Lock in your products/services' profit margins against your budget rates in a volatile and unpredictable currency market.

Non Deliverable Forwards
Ideal for when you need to hedge currency exposures from countries that have foreign exchange control where access to the local forward markets are restricted to domestic companies only.

Disclaimer
The information contained herein is derived from sources we believe to be reliable, but which we have not independently verified. HSBC makes no guarantee as to the accuracy or completeness of this information and is not responsible for errors of transmission of factual or analytical data, nor shall it be liable for damages arising out of any person's reliance upon this without notice. The information contained here is neither an offer to sell or the solicitation of an offer to purchase or subscribe for any currency or related instrument or other investment instrument and is intended for institutional customers and is not intended for the use of private customers. The information contained here is intended to be distributed in its entirety. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this website.

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