Crisis and Currency Risk: Asking the Right Questions to Build Resilience
The COVID-19 pandemic and the accompanying lockdown measures have disrupted our daily lives and the way we do business in unprecedented ways
This difficult situation leaves us with three options:
- Do nothing and let things unfold.
- React as problems arise.
- Take a moment to ask the right questions, implement or strengthen crisis management, and seize opportunities.
The Importance of Crisis Management During a Pandemic
When it comes to crisis and currency risk, doing nothing can be extremely dangerous and jeopardize the survival of the business. Reacting impulsively can be costly and suboptimal, as decisions may be driven by emotion rather than grounded in an integrated risk management framework or the company’s long-term strategy.
The third option offers an opportunity to step back, assess potential risks and opportunities emerging from the crisis, and create lasting value for the company.
Assess Risks and Seize Opportunities
For example, such an exercise might reveal an opportunity to acquire or invest in businesses that do not have the same balance sheet strength, or allow for diversification of product offerings, entry into new markets, vertical integration, or expansion into a new sector. Alternatively, it may reveal the need to exit an unprofitable business line and shed a weak-performing unit.
These strategic reflections should go hand in hand with a review of risk management policies — especially those related to currency risk. Risks related to supply chains, sovereign debt, trade tensions, and inflation will become increasingly important. Their impacts are rarely isolated or short-lived.
These risks have a direct and immediate effect on the frequency and intensity of exchange rate fluctuations.
Currency risk will manifest differently depending on your operational structure. Below are examples of questions and strategies tailored to your profile (exporter or importer), which can help enhance your currency risk policy and make your business model more resilient.
- Break-Even Exchange Rates: : These are the threshold rates beyond which your key clients may struggle to pay you — or similarly, where you may struggle to pay your foreign suppliers.
For more insights, see the following articles: Crisis and Currency Risk: Coronavirus – What Now? and Crisis and Currency Risk: U-Shaped or V-Shaped Economic Recovery?
For broader crisis management strategies, consult this article by BDC: Crisis Management Strategies for Businesses.
International Markets: A World of Opportunities
Growing your business abroad can drive growth — but it also comes with risks for SMEs. Tracking the ongoing impact of exchange rates on forecasted performance is complex.
D-Risk FX provides SMEs with detailed performance, risk, and stress-testing analyses — by market, by currency, and by business line — enabling a tailored hedging strategy and real-time monitoring of expected performance.
Gain autonomy, automate your processes, and approach foreign markets with the confidence of a clear currency risk strategy and the tracking tools to support your ambitions.