FOREIGN EXCHANGE RISK AND MANAGEMENT STRATEGIES
Trade has transitioned from tangible goods, to intangible services, and hedging against Forex risk has moved from buying insurance or hedging options, and by necessity has become an agile and responsive component in long term strategic planning.
EDC offers insurance and hedging programs for firms exporting multimillion dollar goods with long lead times, however for SME selling international services, or exporting goods in relatively small quantities to possibly dozens of customers in various countries, hedging or insurance is difficult, expensive, and rarely effective.
An excellent strategic Forex risk management example occurred during 2014 / 2015 where over a period of about 8 months, the Canadian dollar rose against a basket of Latin American currencies from 40% to over 300%, effectively pricing Canadian products out of a combined market of over 300 million people.
Global Value Chains (GVC) provide an agile and effective Forex risk management framework by establishing Foreign Affiliates in each major market, spreading the risk across several countries, but also allowing the firm to quickly arbitrage favorable exchange movement, by shifting production to the lowest cost location.
Forex risk management strategies form just one part of a strategic operations plan that helps ensures agile risk management, lowest costs and reliable ROI.
XPM has been successfully utilizing GVC to manage Forex risk in over a dozen countries since 1994.