Debunking the top 5 misconceptions about currency hedging

Myth 1: “Hedging is a headache – complicated, costly, and time-consuming!”

Reality: Actually, it can be surprisingly simple and cost-effective with the right strategy, policy and products (options, forwards*). And compared to the headaches and risks of not hedging (think: unpredictable pricing, cash flow chaos, potential loss of competitiveness, inaccurate budgeting), which is way worse — investing in a hedging strategy is always a wise decision.

At Ebury, we help you design the strategy that’s just right for your business without all the fuss.

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Myth 2: “Hedging? Sounds like speculating or timing the market.”

Reality: Not at all! Say, for instance, you have fixed prices. If your costs increase while prices stay the same, you have reduced your profit margins. Hedging helps you fix your costs for a period and brings certainty and future visibility to your finances. Imagine you know exactly what your costs will be for the next year. No more guessing games or tracking market movements daily!

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Myth 3: “Currency fluctuations? They primarily impact importers and exporters.”

Reality: Even if you are not an importer or an exporter, your business is exposed to FX risks if you hold investments in other currencies or borrow funds in foreign currencies.

For example, you are a European business with a 1-year investment of USD 100,000. If the EUR/USD rate depreciates, it will impact your investment value after a year. Any unwanted exchange rate volatility can unpredictably impact margins and cash flows, especially if your business makes frequent FX transactions.

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Myth 4: “FX policy is not for my business. Only large businesses and their treasury teams should worry about it.”

Reality: Any business trading internationally, regardless of size, should have a plan and not leave its profit margins to chance. Think of an FX policy as your profit protection plan against unwanted currency volatility. And the good part: we’ve enabled companies of all sizes and across most industries to protect their budgets from unwanted currency volatility, and can also help your business.

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Myth 5: “Hedging strategy is the same for all. I don’t need an FX partner to design it for my business.”

Reality: Every business has unique circumstances, risk appetite, needs, goals, budget and tenor expectations. Hence, there is never a one-size-fits-all approach to hedging. That’s where Ebury comes in. We get to know your business and build a hedging strategy unique to your business. Like a tailored suit, not some off-the-rack thing.

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Final thoughts

Any business can make informed decisions, effectively manage currency risks, and prepare themselves for success in international markets with the right hedging partner, knowledge and tools.

FX risk management playbook: Manage your currency risk like a pro

Our experts have compiled this guide to help you build a robust risk management framework with a step-by-step blueprint and navigate FX markets confidently.

Access your copy of the ‘FX Playbook’ here 📖