How do I establish my foreign exchange budget?
There are a lot of factors that influence a foreign exchange budget and every business is different. Understanding your business’ forex exposure, knowing your break-even rate, and developing a hedging strategy that works for your business may be a good place to start.
- Understand FX Exposure: Know the amount of FX currency your business transfers each year.
- Understand your Break-Even Rate: Know the ‘target’ profit and loss level you need to hit as a minimum for your currency transactions. This can give you a better understanding of the amount of risk you can take, and whether you need to ‘fix’ at least some of the exposure you have to currency moves.
- The Right Hedging Strategy for your Business: Know some common foreign exchange hedging strategies so that you can choose the right hedging strategy for your business.