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Currency policy

Pragna Patel's Profile

Does anybody have a policy on currency management to mitigate fx fluctuations?


Mariusz Mikolajczak
Title: CFO/ FD/ Controller CEE
Company: Archer Daniels Midland Poland
(CFO/ FD/ Controller CEE, Archer Daniels Midland Poland ) |

the subject is really important. I dont have such a policy but if someone has it then would will be really ok for getting it as well,

regards, Mariusz

Topic Expert
Sunil Thukral
Title: Controller/Technical Accounting Advisory..
Company: Consultant
(Controller/Technical Accounting Advisory/ SEC Reporting, Consultant) |

Any multi-national company would normally have a policy documenting documenting as to how it is managing and mitigating its foreign exchange risk. In fact, if a company is hedging its foreign exchange exposure (either using derivatives or non-derivatives) it needs to include a reference in the hedge document to the Foreign Exchange Risk Management Policy of the company. If the company does not have a risk management policy, then it would be difficult to prove an "accounting" hedging relationship.

As each and every company does not have the same structure - it is difficult to have a standard FX policy. However, you can send me an email at "sunilatUGAAP [dot] com" and I can send you some additional information via email, which you can use as a starting point to develop a FX management policy for your organization.

Best regards,


Damon Butler
Title: CFO
Company: The Protective Group, Inc.
(CFO, The Protective Group, Inc.) |

Beyond hedging it's important to look at "natural" ways to manage your exposure.
1. Pay invoices for inter-company goods immediately upon landing in the "export" market to eliminate the risk and force the operating subsidiary to reflect significant currency changes in its local pricing.
2. Try to maximize local currency liabilities to match asset and liability by currency.
3. In a larger organization one might put manufacturing capacity into a significant export market to offset risk (e.g. the Japanese auto transplant factories in the U.S.).
4. Where you have manufacturing in multiple countries work to generate revenues in the local currency so there is a natural inter-play between the expenses and revenues in the local currencies.

John Herndon
Title: Senior Consultant
Company: NOWCFO
(Senior Consultant, NOWCFO) |

I recently replied to John Kogan's posting on FX management with the following addatives...

Re:Policy and Practice for Foreign Currency Exposure Management
by John Herndon (Accounting/Finance Consultant) - 04/01/2010 - 9:57am

I would suggest the following enhancements to the F/X policy. In my experience these are best practices and solid strategies to pursue.

1. All intercompany invoicing is to be completed by work day +2.
2. It is the policy of the company and a key control from this point forward that inter-company balances will be confirmed on a monthly basis by work day +3.
3. Any imbalances due to inventory in transit, disputed charges, etc will be reconciled within the current month. In the event both parties cannot agree, the receiving entity (invoicing entity) will agree to the sending entity (invoicee) in the current month to ensure inter-company balances agree and reconciled in the immediate following month.
4. If both entities cannot agree in the following month, the issue(s) will be submitted for mediation to the Director of Accounting. All accruals relating to disputed balances will remain on each legal entity’s General Ledger until mediation is concluded.
5. All inter-company balances are to be settled on a quarterly/monthly basis.

It is the policy of the company to mitigate exposure to foreign currency fluctuations by settling inter-company transactions on a monthly/quarterly basis. Although management reserves the right to engage in foreign currency hedging practices, the company does not consider these strategies as standard practice due to the complex nature and accounting for the instruments.

I have been involved in FAS52 (currency translation) activities for the last 11 years of my career. Most of the time, the exposure a company faces relates to transactions between legal entities when funding occurs or transactions are denominated in the controlling currency (i.e., currency of the parent). Overall, anytime a transaction is initiated in a currency other than the functional currency of the legal entity (i.e., the local currency) there is a much greater risk of long term foreign currency exposure.

These risks can be mitigated by aggressively settling I/CO balances, the less that remain open the less the exposure; agressive collection efforts on any foreign denominated collection instrument, exposure to f/x changes are same as above; agressive efforts should be made to settle any foreign denominated liabilities/instruments, exposure to f/x changes are same as above.

I have worked with several clients on this issue and have seen the wrong way and the right way to pursue risk avoidance.

Let me know if there are any questions.

Pragna Patel
Title: Mgr, Compliance & Controls
Company: Masonite International
(Mgr, Compliance & Controls, Masonite International) |

Thank you for the info

Jan P. Berger
Title: Vice President, Risk Management
Company: Live Nation Entertainment, Inc.
LinkedIn Profile
(Vice President, Risk Management, Live Nation Entertainment, Inc.) |

I agree with Sunil that each company has to have custom components to reflect the philosophical approach the company wants on hedging as well as other specifics. Ask your financial institutions and audit firm for samples, and use those as a basis for customizing one that fits your company.


Linda Markin
Title: CFO
(CFO, ) |

We are a small business with a large component of foreign business. We hedge our receivable risk. I would be happy to send you a copy of our ForEx policy, if you think it would be helpful.


James Scalfaro
Title: Assistant Treasurer
Company: Sealed Air Corporation
(Assistant Treasurer, Sealed Air Corporation) |

FX hedging concepts are the same for small and large companies. To develop an FX hedging policy, there are a several strategic decisions that every company must address.

1) Hedge Philosophy - a) hedge all exposures as soon as they become know; b) hedge none - wait until the exposures has to be paid (spot) and pay it at that time; or c) selectively hedge exposures anytime between when they first become known to when they have to be paid.

2) Hedge Type - a) transactional exposures (payables / receivables); b) traslational exposures (translate foreign entities balance sheets to parents functional currency for consolidation and reporting purposes); and c) economic or competitive exposures (hedge risk in a third currency to protect against a competitor having an advantage over you because of currecy movements).

3) Hedge Instruments - spot contracts, forward contracts, FX swap contracts, FX option contracts, FX futures contracts. What hedging instruments are permitted. If you allow FX options, can they buy and sell options? What option structures are permitted?

4) Clearly define the reasons & objectives for FX hedging.

5) Are you allowed to speculate on currencies? Once hedged, are you permitted to unwind a hedge?

6) Who is authorized to enter into FX hedges?

7) Segregation of Duties - trading, confirmations, approving, mark-to-market, wires.

8) Counterparty Credit Risk - What banks are they permitted to trade with? You will need to establish spot and total exposure lines (spot / forwards) for each bank. How do you track your exposures to these banks? How many years out can you hedge?

9) Are you having a centralized or decentralized FX risk process?

10) Who approves the policy? How often is the policy reviewed? Who can approve any exceptions to the policy? Identify all the people / titles that are involved in the process and clearly define their roles.

11) Do you provide internal and external hedges or just external hedges?

12) What documents do you provide to your counterparty banks, such as ISDA's, authorization letter, and a list of entities that you trade on behalf of.

13) For control purposes, it's important to get standard settlement instructions for your banks and to provide them with your instructions.

14) Do you have an automated tool to track trades or is it a manual process? How are you going to account for each trade - consecutive numbered tickets?

This should allow you to complete a significant portion of your FX policy and have it tailored to your risk appetite.

Linda Markin
Title: CFO
(CFO, ) |

There's a good article in the April 2010 issue of CFO magazine about coping with intensifying currency risk.
The best part of the article is the last page which suggests a few relatively simple financial hedge strategies. We use all of these and are FAR smaller than the other companies profiled in this article. Small companies need not be intimidated by methods to put floors to potential currency losses.

Philip Alford
Title: CFO Partner
(CFO Partner, ) |

Had a very good presentation by Citibank recently on hedging strategies They can help develop your approach and have a global platform Be pleased to refer them Let me know

David Tompos
Title: VP - Finance
(VP - Finance, ) |

There are many types of currency exposures and risks. Balance Sheet hedging should be a concern. How you capture the value of assets in their transactional currency is also very important - if you mix USD / CAD / EUR you will have a mess on your hands when it comes to financial statement translation. You may also consider borrowing in F/X if you are "long" on certain currencies on the asset side, thus reducing the net asset position in currency that could be subject to translation gain or loss.

Good comments from Damon and James on policies to mitigate the risks. You may want to consider anticipatory hedging also. If you have a number of EUR customers, and your sales history is fairly accurate (+/- 10%), you could put some forward contracts in place to sell EUR into USD to protect your "Budget" F/X rates. But only to a level you are comfortable with! Maybe 50% of "Budgeted" sales in F/X. As you get closer to the month of sales, review your orders from the EUR customers to see if they are firming up to the Budget level, and you can elect to enter more hedges or not, depending on the favorability of the F/X rate, or the cost of the hedge.

Work with your external auditors on an effective strategy and tactic to reduce the F/X translation volatility that your business might be subject to. They can help provide some guidelines to keep the company out of danger.

Good luck!

Scott Gunn
Title: CFO
Company: In-Transition
(CFO, In-Transition) |

The dollar has been making a big move given what is going on in Europe so F/X exposure management is more important than ever.

I noted that Proformative is having a webinar on May 27th that will provide some insights regarding how to benchmark the effectiveness of the F/X exposure management program at your company and I wanted to be sure that embers were aware of the webinar.

Murray Thomas
Title: Head of Corporate FX
Company: OANDA Corpation
(Head of Corporate FX, OANDA Corpation) |

You are able to download (no registration required) a couple sample policies (Board and Management) at

Of course, you would need to customize for your specific company.

Hope this helps.

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