FX Risk Management
Currency (exchange rate) risks can greatly influence your business results, and even change the value of your company. Therefore it is particularly important that businesses consider the amount of currency risk that they are willing to take and decide whether to partially or wholly cover such risks. When making a decision about currency risks, you need to take into account three different types of risk: transaction risk, transfer risk, and economic risk.
Rabobank will gladly help you with the management of your currency risks. Making use of the professional instruments of currency management is no simple matter, but Rabobank is at home with such matters. Furthermore, our modern dealing rooms, located, amongst other places, in Utrecht, London and Singapore, have direct access to the international currency markets.
Transaction Risk
Transaction risk is the risk of fluctuating currency values. As an importer, it is to your disadvantage if the value of the currency in which you trade increases, as your import products will become correspondingly more expensive. Conversely, as an exporter you can find yourself at a disadvantage if currency rates fall, as you then run the risk of receiving lower than expected prices for your export products.
Transfer Risk
Transfer Risk is the risk that arises when businesses possess assets that, if converted into another currency, could result in an adverse financial situation. For example, this might currently be the case if your profit/loss balance sheet is drawn up in euros, but your account is in dollars. Ultimately your total balance will be dependent not just on your balance sheet in euros, but also on the value of that balance after it is converted into dollars at the current exchange rate.
Economic Risk
You run economic risks when the costs of operating and producing in the country where your business is based become expensive relative to other countries. Changes in the balance of the international economy can adversely affect the competitive position of your business.