Many factors can affect the fluctuating global currency market in the period between a signed deal and the final payment. The fluctuations create cash flow uncertainties for businesses and headaches for their CFOs, with the risk of increased purchase prices and decreased selling prices.
That is why you should always have a hedging strategy in place to help mitigate the risk of currency fluctuations and the potential negative impact on your forecasted profits.
How many Danish companies use hedging?
The Confederation of Danish Industry recommends that Danish companies evaluate how hedging can assist in managing currency risk. Despite these recommendations, a survey from the Confederation (in Danish) shows that only 10-33% of Danish companies hedge their activities in USD, GDP, NOK and SEK (depending on currency). These currencies represent the biggest trading partners for Danish companies, along with EUR. The survey is based on 345 companies in Denmark.
Despite the low use of hedging, annual currency fluctuation can be up to 10%. The graph below shows the volatility of the individual currencies.
How much can currency fluctuations affect financial results?
Example: Exchange rate exposure for a hypothetical Danish company
The currency composition in the graph below includes the most important trading currencies for Danish companies (aside from EUR). The specific composition has weakened 13% relative to DKK since the end of 2015, according to the graph below. A weakening of this magnitude has most certainly hit companies that do not systematically hedge their currency risks. By hedging, a company can reduce uncertainty and protect its business.
Nordea Markets can help you manage your currency risk
We help estimate your company’s foreign exchange exposure as well as provide you with an overview of the different hedging solutions. We will help you set up a currency policy, create a currency account and give you access to the e-Markets portal. Here you can quickly and easily hedge your currency exposure from your laptop, tablet or mobile phone wherever you are.
Still not sure whether your company needs a currency strategy? Ask yourself three important questions from Niels Christensen, Chief Analyst in Nordea Markets.
Want to know more? You are welcome to contact us via firstname.lastname@example.org.
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