Foreign exchange and interest rate strategies

The first stage of the process consists of mapping out the effect that fluctuations in interest rates, foreign exchange rates and commodity prices will have on the company’s cash flow and balance sheet. The outcomes of various scenarios will be quantified. Typical questions might be:

• What will happen to your income if the dollar weakens by ten per cent?

• What if diesel prices or other commodity prices rise?

• What do increased prices mean for the company’s borrowing costs?

After the surveying phase, the focus is placed on how much risk the company can withstand, and how much of the risk you want to be exposed to. In other words, you can hedge against part or all of the risk exposure.

Based on this, we will propose a strategy for managing and controlling the risk. The strategy is specific regarding everything related to product choice, degree of insurance and the time horizon. It also covers conditions such as organisation, reporting, accounting treatment and evaluation.

After formulating the strategy, the overarching plan must be put into action. First and foremost, your company receives a continuous overview of its financial exposure and market risk. When this risk exceeds defined limits, your company must enter into risk-mitigating hedging transactions.

Over time, the hedging transactions will also expire and need renewing. The implementation consists of defining how the management is executed and adapting it to the company’s financial system solutions.