Currency Risk Management: Refocusing on Operations to Protect Your Margins

Currency Risk Management Policy

A currency risk management is not primarily a market issue. It’s an operational one. It is the nature of your operating cycle — your sales, purchases, margins, and timelines — that determines how sensitive your profitability is to currency fluctuations.The foreign exchange market is the same for everyone, but what makes your risk unique is your operations.

Instead of trying to guess the direction of an unpredictable variable like the exchange rate, it is more strategic to reframe decisions around operational profitability. A well-crafted currency risk management policy isn’t just a shield — it’s a lever to achieve your business goals.

Why Have a Currency Risk Management Policy?

When misunderstood or neglected, currency risk can silently erode margins, blur performance insights, and hinder strategic decision-making. A clear policy helps to:

Provide a reference framework for all hedging decisions.
Align expectations across management, operations, finance, and external stakeholders.
Avoid emotional decisions taken in haste or based on intuition.

Framing: Start with Your Operations

Before anything else, you need to understand how your company is exposed. This involves: comment votre entreprise est exposée. Cela signifie :

Identifying all cash inflows and outflows in foreign currencies.
Understanding when these flows become economic risks.
Analyzing margins by product, market, and period.

This framing exercise turns a vague issue into something measurable and manageable.

Execution Strategy: Hedge to Protect Profitability

Once exposures are clearly defined, the strategy is about covering the right amounts, at the right time, in the right proportion. The goal isn’t to outperform the market, but to protect your forecasted profitability.

Financial tools like forward contracts and options are just that — tools. The strategy is rooted in your internal data: budget, risk tolerance, cost structure, seasonality, and margin targets.

Measuring Results

If it’s not measured, it can’t be managed. It’s essential to track results:

What was the actual impact of exchange rate movements on your margins?
Did the hedges perform as expected?
Are we aligned with our currency policy?

Risk management becomes a learning and adjustment process.

Governance and Continuous Improvement

Like any strategic function, FX risk management must rely on clear governance:

Who decides? Who executes? Who supervises?
What alerts, controls, and accountability mechanisms are in place?

And most importantly: how does the policy evolve with changes in the market environment or the company itself?

Embedded in Your Business Cycle

Your currency risk policy should be embedded directly into your operational cycle. This means:

Being aligned with budget forecasts.
Adapting to operational realities (e.g., new markets, volume changes).
Becoming part of decision-making across sales, procurement, and strategic planning.

From Currency Risk to Product Value

When managed well, currency risk becomes more than a shield — it becomes a source of value. For instance:

It helps stabilize export pricing.
It secures margins in competitive bidding situations.
It brings greater predictability to financial performance, boosting credibility with investors, lenders, and partners.

Aligning Expectations

A strong policy sets clear expectations:

Between management and operational teams.
Between shareholders and financial performance.
Between the company and its financial partners.

Alignment is key to policy durability — and the consistency of decisions over time.

Conclusion

Currency risk management doesn’t begin with the markets. It begins with you. A structured policy grounded in your operations becomes a strategic management tool, a value-creation lever, and a source of clarity across your organization.

currency risk

You may also read: Currency Risk Management Strategy: Are you Well-Prepared? and Currency Risk Management Policy

For additional insights on currency risk management, visit: Bank of Canada – Currency Risk Management

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 performance, risk, and scenario analyses by market, currency, and business line—leading to a tailored hedging strategy and real-time visibility on projected financial 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.