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Living With Volatility

As the euro wobbles, companies need hedging strategies to manage foreign exchange risk and protect profits.

By staff Writer | Updated on March 01, 2010

The world of finance has changed dramatically over the last two years. Movements in the markets that used to take months or years to develop now actually take place in a day or over a couple of weeks,Volatility in the markets has made risk management a top priority for companies that do business globally. Consider the euro, which since December has lost almost 10% of its value against the dollar. On a trade-weighted basis, the dollar declined by more than 16% in 2009 after reaching its peak in March, says Custom House’s Ganesh Rao, in answer to T&R’s questions on FX risk.

T&R: What trends are emerging so far in 2010? Rao: More firms are revising their risk management processes by implementing more strategies to ensure that they are not caught on the wrong side of large currency swings. Some companies are using international payments to help reduce costs and have incorporated this process into their risk management strategy. For example, companies that were importing raw materials saw their costs increase dramatically last year. They have learned that not having a risk mitigation strategy in place, whether simple or complex, can have a negative impact on their bottom line. As 2010 sets up to become a strong run for the U.S. dollar, more companies are looking to manage their international payments exposure more effectively and ultimately add to their bottom line.

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