In order to minimise the exchange rate risk, it is necessary to carry out a precise follow-up of the various data concerning the financial operations carried out by your company.
For this, the production of regular financial reporting is therefore essential. This reporting thus consists of several stages: data collection, analysis, exploitation and sharing.
Thanks to the availability of the various financial data, companies can anticipate exchange rate risks and implement appropriate hedging strategies.
To optimise your company’s financial management and the various foreign currency transactions as much as possible, do not neglect financial reporting.
How do you prepare your reports efficiently ?
Financial reporting is therefore an essential document for the proper development of your business.
Indeed, it enables you to adjust your currency hedging strategy and thus reduce possible losses related to foreign currency transactions.
In order for your reporting to be as effective as possible, several steps must be followed:
- Targeting of data: by year, by area…
- Collection of relevant data: budget forecasts, accounting data, purchases and sales, stocks, etc.
Analysis and processing: creation of a financial dashboard
Dissemination: formatting to make the report accessible and understandable
The forecast in foreign currency
Carrying out foreign currency transactions is nowadays commonplace and requires a certain amount of management by companies. Indeed, whether buying or selling, a foreign currency transaction involves exchange rate risks.
Exposure to exchange rate risk therefore requires a precise and adapted financial strategy.
Among the various measures that enable you to reduce exchange rate risk, it is essential to take an interest in forecasting your foreign currency transactions.
This forecasting of the various flows in foreign currencies is made thanks to several elements:
- Forecast budget in foreign currency
- Working capital requirements in foreign currencies (Working Capital Requirements)
- Foreign exchange cash flow
- Bank balance in foreign currency
Drawing up a provisional budget in foreign currency is therefore essential in order to forecast and anticipate all the potential costs associated with these financial operations as well as possible.
To help you manage your operations and protect yourself against currency risks, DeftHedge supports you with its SaaS solution.
In order to reduce the risk of loss for your foreign currency transactions, you should be aware that several hedging operations can be put in place.
One of the solutions to protect against exchange rate risk is natural hedging.
The aim of this strategy is to balance the amount of buying and selling transactions in a single currency.
To make this possible, the most suitable solution is to relocate all the protection to the country where the market is located.
Other alternatives exist to protect against exchange rate risks. Indeed, companies can use financial hedging through different strategies.
Via the foreign exchange market, several financial instruments can be used to reduce exchange rate risks:
- Forward contracts: firm agreement between the seller and the buyer on the price and amount of a transaction. The payment and delivery of this transaction will be effectively realised at a later date.
- Currency options: A currency option is a right whose value (premium) is paid by the buyer of the option to the seller of the option.
- Currency swaps: a transaction involving two parties who undertake to modify the initial date of a flow provided for in a forward contract.
Zero-premium contracts: agreement to define a range of exchange rates within which the company undertakes to carry out the transaction (both for the sale and the purchase).