Is Your Business Prepared for Foreign Exchange Risk?

Transcription

1 Is Your Business Prepared for Foreign Exchange Risk? Dave Maher, SVP FX Trading, BOK Financial FIBCA Conversation about FX March 23, 2017 Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

2 Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

3 The Risk of a USD Business Model While some companies avoid foreign exchange (FX) due to the perceived risks of foreign currencies, not participating in FX and focusing solely on the U.S. dollar may be a riskier proposition By dealing only in USD you are allowing others to determine the price for the transaction. There is an FX transaction being done as dollars get exchanged for the local currency by the foreign bank. By transferring the currency risk to your counterpart you are being charged a premium. Are you aware of what that premium is? By not selling in foreign currency you are missing opportunities to be competitive and expose your products to other markets Determining when to deal in the local currency or USD could be as simple as asking for an invoice in both the local currency and in USD. If the local currency alternative is cheaper than the USD it s simply a matter of sending an FX wire instead of a USD wire Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

4 If you are already dealing in FX then it s important to have a hedging strategy Companies hedge because they don t know where the currency is going. They don t rely on experts to predict the currency movement There is no such thing as a perfect hedge You hedge for a known result: To control cost and protect profit margins FX Forwards is a product to hedge currencies in the future Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

5 Volatility The point about volatility is that seldom do we know why a black swan event will happen and cause wild fluctuations but of late this multi standard deviation moves are occurring even among major currencies Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

6 Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

7 Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

8 Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

9 Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

10 7 Things Successful CFOs Do About Foreign Exchange Risk 1. Accept that doing something gives you a competitive advantage over those who do nothing 2. Understand that global currency fluctuations can wipe out profits in spite of sound business practices and accurate financial models 3. Recognize the positive impact that a formal FX risk management strategy can have on the company s bottom line 4. Know where your company s FX exposures exist and how much of an impact they can have 5. Consider the appropriate variables to define objectives for a scalable FX risk management strategy 6. Identify the people, functions and levels of responsibility of those that need to be involved in the implementation of an FX risk management strategy 7. Leverage the expertise of external specialists who know how to design and implement cost-effective, pragmatic FX risk management strategies Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

11 Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.

12 I hope the information presented here will allow you to make an informed decision about how to best handle your international business Dave Maher SVP FX Trading BOK Financial Thank You Services provided by BOKF, NA doing business as Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas, Colorado State Bank and Trust. Member FDIC. Equal Housing Lender.