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Issue: May 2019

Steve Kulchyk, Allison Gramlow and Shannon Coffey

Exchange Rates May Be Unpredictable, But Your Business Doesn’t Have To Be

And using that information to fill up “the cracks”

by Paul Lennox

As we all know, the currency markets can be volatile with the US dollar often moving up or down 10% or more in just a few months. As a matter of fact, over the past 25 years there have been 10 years when the US dollar has appreciated at least 10% and 8 years when it has fallen at least 10%. Moves in excess of 20% are not uncommon.

This fluctuation in the US dollar presents businesses with a dilemma; if you’re an importer, how do you know when to buy your dollars? Or, if you’re an exporter, how do you know when to sell your dollars? Should I buy (or sell) now or wait to get a better rate, but risk getting a worse rate is a common question? We work with hundreds of companies in different industries and there are many “right” answers to this question.

For most businesses it is important to protect budgeted or expected USD cash flows (receivables or payables) from big adverse dollar moves. However, most businesses also want to participate when the dollar moves in their favour. EncoreFX excels at developing and implementing foreign exchange strategies to give clients peace of mind by balancing these opposing protect and participate preferences.

Yes, we have clients who want both 100% protection and 100% participation and, yes that is achievable, but at a cost. Many businesses are in the 50/50 camp. They want enough protection to provide a cushion against a really bad dollar move and they are willing to give up some participation in a favourable move to achieve that balance with a zero-cost solution.

Of course, we also have clients that require 100% protection – they are often large project-oriented businesses and just need to lock in an exchange rate to protect their margins on a contract. At the other extreme, a produce importer is able to change their pricing on the fly in response to exchange rate fluctuations so they require no currency protection but value timely execution of their USD purchases.

The common theme for all clients is that the right strategy for balancing their foreign exchange protect/participate preferences is driven more by internal business factors rather than trying to predict the next move in the dollar. What is the impact on the company’s earnings if the dollar rises or falls 10%? How reliably can you forecast your US dollar payables or receivables over the next 6 to 12 months? Can you comfortably buy or sell some of your dollars in advance, in the forward market for instance, so you always have a sufficient cushion?

At EncoreFX we work with businesses across Canada to help them save time, money and stress related to their foreign exchange dealings. Larger companies have internal treasury expertise and access to the services of the leading global foreign exchange banks. We bring that level of expertise and service offering to smaller Canadian companies that think big.

Learn more from our local experts Allison Gramlow and Steve Kulchyk at 226-241-6669 or 1-833-307-4043.

Suite 1009, 180 Northfield Drive Unit 4, Waterloo
Phone: 226-241-6669
Mobile: 226.338.6593


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ISSN 0824-45
Copyright, 2019

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