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The Top Five Things That Can Go Wrong if a Company Does Not Hedge its Exposure to Foreign Currencies

Minneapolis, MN | December 13, 2023 | By: John Trefethen, Director and Co-Founder


For this week’s HedgeStar’s Top 5 list, we are going to list the top five things that can go wrong if a company does not hedge its exposure to foreign currencies.


Grey, green, and black top 5 graphic

Number 5 – Strategic Misalignment.  Failure to align currency exposure to a company’s overall business strategy can lead to unexpected losses and volatility.


Number 4 – Competitive Disadvantage.  Companies that effectively hedge their currency exposure may have more stable cost structures, pricing strategies, and financial performance compared to companies that do not effectively hedge their currency exposure.


Number 3 – Impact on Cash Flow.  Unpredictable currency movements can affect the timing and amount of cash flows, making it difficult for a company to plan and manage its working capital effectively.


Number 2 – Earnings Volatility. Without currency hedging, a company’s financial statements may experience significant volatility due to changes in exchange rates making it challenging for stakeholders to assess a company’s true operational performance.


Number 1 – Exchange Rate Risk.  If a company operates in multiple countries and does not hedge its exposure to foreign currencies it becomes vulnerable to sudden and adverse movements in exchange rates which can significantly affect a company’s profitability.

Learn more today and contact a HedgeStar expert!



 

Be on the lookout for our next top 5 list – the top five things company’s should consider before entering into an interest rate swap.


Author: John Trefethen, Director and Co-Founder


Mobile: 612-868-6013

Office: 952-746-6040


HedgeStar Media Contact:

Megan Roth, Marketing Manager

Office: 952-746-605


 

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