While many corporate executives and treasurers are currently considering whether or not to defer the repayment of their State Guaranteed Loan (SGL), they are also aware that other levers are available to them to optimize their cash management.
For companies with foreign exchange reserves, selling all or part of their foreign currencies and converting them into euros is a particularly interesting alternative for improving their cash flow.
However, converting your foreign currencies into domestic currency is not the only solution available to reduce your company’s liquidity risk.
Other options such as hedging are also available to you to reduce your exposure to currency market fluctuations, provided that you respect the keys to good currency risk management. Explanations :

Understand your exposure to foreign exchange risk

Managing your company’s foreign exchange risk is not simply a matter of converting your currencies at the best rate, or even selecting the right hedging instrument. For an optimal management of its currencies, it is indeed necessary to start by defining the exchange policy of its company with precision.
During this first step, having a precise methodology allows to determine the framework in which the company’s foreign exchange strategy will evolve.
Once this framework has been established, and once the various risk exposures of your company have been identified and understood in detail, you will be able to make the best decisions in light of your objectives.

Getting the focus right when managing foreign exchange risk

When it comes to managing your company’s cash flow, the objective is obviously not to try to “beat the market” as a speculator would do, but to secure the counter value of your foreign currencies in order to allow your company to reduce its level of vulnerability and gain in competitiveness.
In order to do so, it is essential for the company to reason in relation to a reference rate around which its foreign exchange strategy will be articulated, and which it will be possible to update periodically (at each new fiscal year or at the end of each quarter for example).

Choosing the right products

Once the company’s foreign exchange policy and strategy have been methodically defined, it is time to choose the right hedging product and to look for the best exchange rate available on the market.
At this stage, there is no need to systematically look for the most complex financial products. The objective will be above all to ensure that your objectives, your capacities and the product in question are well matched.
As you will have understood, a few simple steps will allow you to improve the management of your company’s foreign exchange risk, and in turn, reduce its liquidity risk when it has foreign currency reserves.
Rather than focusing all of your company’s attention on the EMPs proposed by the French government, take a moment to analyze all of the solutions available to you to help your company survive and prosper !
If you find these keys to good foreign exchange risk management complex, please contact DeftHedge.
Our “SmartStrategy” simulator suggests hedging strategies according to your management constraints. Quickly create new hedging strategies and visualize the impact of a new strategy on your exposure in one click : Solution
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