Gestion du Risque de Change
Why a Currency Risk Management Policy Should Be Embedded in Your Organization’s DNA?
Risk can be perceived as the probability that an event—whether positive or negative—will impact your business objectives. Some risks are inherent to the nature of the business and how it operates (reputation, delivery failures, information systems, equipment, etc.). Others stem from external events that can create opportunities or threats. Currency risk is one such factor, making currency risk management essential for any company engaged in international transactions.
Managing both current and future risks—whether as an opportunity or a threat—is vital for every company. A currency risk management policy serves as the foundation of a proactive approach to addressing all risks affecting business strategies, operations, and overall objectives. It provides a proven framework through which a company can identify, manage, and respond to risks—whether threats or opportunities—in an organized manner. Some risks are necessary, while others are unavoidable. Risk management is a structured approach to identifying, assessing, and mitigating the threats and opportunities a company encounters.
What is the Purpose of a Risk Management Policy?
A risk management policy aims to clearly define roles, responsibilities, and the chain of command involved in risk identification and management. It ensures consistent risk management across the company through standardized application. It raises awareness and reinforces the importance of effective risk management among employees, encouraging best practices through shared experiences. It fosters a corporate culture where risk management is a key business process—integrated into performance management rather than being a bureaucratic burden.
Why Implement a Risk Management Policy?
In general, a risk management policy supports strategic decision-making and enhances a company’s operational and financial management. It facilitates knowledge transfer and expertise retention, ensures greater compliance with business processes aligned with industry best practices, and strengthens customer service. Fundamentally, a risk management policy improves overall performance—risk and performance go hand in hand!
An effective risk management policy ensures that the organization aligns with key aspects of its business processes. It is designed to be comprehensive and to protect the company against a certain level of financial loss. One of the most underestimated benefits of a currency risk management policy is compliance. It demonstrates to financial institutions that the company acknowledges and actively manages its currency risk as part of its performance strategy—enhancing its creditworthiness.
A well-structured risk management program also helps identify weaknesses in operational systems and suppliers, preventing and mitigating potential negative impacts. In most cases, system failures result from the lack of a clear risk identification and problem-resolution process within business operations.
When is a Risk Management Policy Useful?
Sooner or later, every company will face a major negative event. A strong risk management program is the first line of defense, helping to mitigate collateral losses. Additionally, it offers continuous improvement opportunities that can positively impact growth by enhancing data collection and analysis processes.
More importantly, an effective currency risk management program reduces the frequency, type, and severity of adverse events—effectively lowering the cost of doing business.
How Does a Risk Management Policy Improve Competitiveness?
Any organization that understands its strengths and risks—and takes steps to address its weaknesses—will be better positioned to compete.
The attitude and approach to risk management taken by business leaders significantly influence the effectiveness of the program and, just as importantly, employee engagement. Risk management should not be imposed but rather executed collaboratively by employees for the benefit of the organization.
Risk as a Driver of Value Creation
Managing risk as a key factor in sustainable growth.
Currency Risk Management Policy
A currency risk management policy is a fundamental part of a company’s broader risk management strategy. Exchange rates can fluctuate by 10% or even 20% over a year, significantly impacting cash flows. A 10% decline in the value of receivables or a 10% increase in payables can dramatically erode a company's profit margins. Currency risk can wipe out export profits or substantially increase import costs.
Companies should neither speculate on currency values nor ignore the impact of exchange rate volatility on their competitiveness and financial performance. A currency risk management policy adds value to a company’s operations by improving price stability and cash flow predictability, reducing risks associated with foreign market operations, enhancing the company’s ability to raise capital (both equity and debt), and ultimately increasing its market value.
Voir les articles suivants pour plus d’information sur la gestion du risque de change : Currency Risk Management: Incidence and Velocity and Currency Risk Management: Defining a Cash Flow Strategy
Pour plus d’informations sur la gestion du risque de change, veuillez consulter l’article suivant : Currency Risk Management – EDC.
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