Currency Exchange Rates

Protect your margin before markets move. FX can erase profit fast. Keep it simple with these seven steps: 1. See it ➞ Make a list of every FX cash flow. ➞ Currency, amount, date, in or out. 2. Hold currencies ➞ Open multi-currency accounts for top markets. ➞ Collect locally and convert when you choose. 3. Set a budget rate ➞ Pick one quarterly FX rate with a small range. ➞ If spot exceeds the range, reprice or hedge. 4. Use forwards ➞ Lock a portion of near-term cash flows. ➞ Match maturities to invoice dates. 5. Build natural hedges ➞ Offset inflows with outflows in the same currency. ➞ Pay suppliers or loans in the currency you sell. 6. Price and invoice smart ➞ Quote in your cost currency or add an FX clause. ➞ Shorten terms and offer early payment. 7. Net and time conversions ➞ Net payables and receivables by currency each week. ➞ Convert twice a week using limit orders. You cannot control financial markets, but you can manage FX exposures. How do you manage your FX risks? ------- ➕ Follow Jonathan Maharaj FCPA for finance‑leadership clarity. 🔄 Share this insight with a decision‑maker. 📰 Get deeper breakdowns in Financial Freedom, my free newsletter: https://lnkd.in/gYHdNYzj 📆 Ready to work together? Book your Clarity Session: https://lnkd.in/gyiqCWV2

FX & Interest Rate Risk Management Cheat Sheet! 2 critical financial risks treasury teams manage are FX risk and Interest Rate Risk (IRR). If not properly managed, both can erode margins, distort earnings, and create instability in cashflow planning. Learn more: https://lnkd.in/gwSMHnRG Here is a concise framework you can use: 1. Foreign Exchange (FX) Risk Key FX Risk Types • Transactional FX Risk – Exposure from future contractual cashflows such as imports, exports, accounts receivable, and accounts payable. Impact: Margin volatility and cashflow uncertainty. • Translational FX Risk – FX impact when consolidating financial statements of foreign subsidiaries. Impact: Earnings volatility in the balance sheet and income statement. • Economic FX Risk – Long-term impact of exchange rate movements on competitiveness and pricing strategy. Impact: Potential market share erosion. Measurement & Monitoring You can track exposure using tools such as: • Net Open Position (NOP) – aggregate currency mismatch across inflows and outflows. • FX Sensitivity Analysis – EBITDA impact from ±5–10% currency movements. • Scenario Modeling – base, worst, and best exchange rate scenarios. Operational Mitigation (Natural Hedging) Before using derivatives, you can reduce exposure through: • Currency matching of receivables and payables • FX budget rates for pricing and procurement planning • Local currency settlement strategies • Procurement timing adjustments based on FX trend Financial Hedging Instruments When natural hedges are insufficient, you may use: • FX Forwards – lock in exchange rates for future obligations • FX Options – downside protection with upside participation • Cross-Currency Swaps – exchanging one currency for another Strong governance is essential, including hedge ratio policies, counterparty monitoring, hedge effectiveness testing, and board-approved FX policies. 2. Interest Rate Risk (IRR) Interest rate volatility affects borrowing costs and investment returns. Key IRR Types • Repricing Risk – mismatch between asset and liability maturities • Yield Curve Risk – changes in short- vs long-term rates affecting refinancing costs • Basis Risk – mismatch between benchmark indices (e.g., SOFR vs Prime) • Optionality Risk – early repayment or prepayment risk affecting expected cashflows Measurement Tools Treasury teams typically use: • Interest Rate Gap Analysis • Duration Analysis • Stress testing using ±100–200 bps scenarios IRR Hedging Instruments Common tools include: • Interest Rate Swaps – convert floating debt into fixed rates • Interest Rate Caps – set maximum borrowing cost • Interest Rate Floors – protect minimum investment returns • Collars – combine cap and floor for cost-controlled protection Treasury is really about protecting enterprise value from financial market volatility while maintaining stable margins and predictable cashflows. 📌 Repost & Share!

Foreign Exchange Risk: Mitigating Uncertainties in Treasury Management Foreign exchange (FX) risk presents a unique set of challenges within the treasury operations of banks, especially those engaged in international transactions. As currency values fluctuate, they can significantly impact the bank's earnings and capital. Understanding and mitigating this risk is essential for maintaining the financial health and stability of an institution operating on a global scale. Treasury departments employ various strategies to hedge against FX risk. One common approach is the use of forward contracts, which allow banks to lock in exchange rates for future transactions, thereby neutralising the effect of adverse currency movements. By securing a predetermined rate, banks can plan their financial strategies with greater certainty and reduce the risk of exchange rate volatility affecting their profitability. Another tool at the disposal of treasuries is currency options. These financial derivatives provide banks with the right, but not the obligation, to buy or sell a specific amount of foreign currency at a predetermined price before a certain date. Options offer flexibility and protection against unfavourable exchange rate movements while allowing banks to benefit from favourable shifts. Natural hedging is yet another technique employed to manage FX risk. This involves offsetting exposure in one currency with exposure in the same or a correlated currency. By structuring operations or assets and liabilities in a manner that naturally offsets currency risks, banks can reduce their need for external hedging instruments, thereby lowering costs and complexity. The management of FX risk is not solely about protecting against potential losses; it is also about identifying and seizing opportunities that currency fluctuations may present. However, it is crucial that banks approach this with a conservative strategy, recognising the volatile nature of the forex market. A well-thought-out approach, combining accurate forecasting and diversified hedging techniques, can help banks navigate the complexities of currency exchange. The importance of FX risk management extends beyond the treasury department; it is a critical component of a bank's overall risk management strategy. A realistic and informed approach to foreign exchange can help a bank maintain financial stability, meet regulatory requirements, and support its international operations effectively. By delving into the intricacies of FX risk and its mitigation strategies, we can gain a deeper understanding of the global financial landscape. This knowledge is beneficial, ensuring that banks remain robust and resilient in the face of currency market volatility.

Lots of AI talk at @ACT this week, and a lot of the buzz was about agents. But the more you give to an agent to do, the more scope it has for misunderstanding and hallucination, so what do you need to know? Here’s some of the thinking behind one of our own AI agents, the FX Hedge Advisor, which meets SOX standards. Specifically, the key things we knew had to be right before we could trust it –as treasurers ourselves. 1. Hedge the right number, or do not bother. Build validations in for completeness, accuracy and cut off amongst others. Before anything else, the tool has to net per currency, filter functional currency entity by entity, handle intercompany properly, and value against today's market. If that picture is not clean and current, every recommendation downstream is built on sand. 2. Ask the question that does not get asked. Most teams default to a forward because working through forwards, layered forwards, collars, options, natural hedges and swaps, per currency, against the company's own policy, takes time no one has. The tool's job is to do that comparison – properly, every time – so the default stops winning by attrition. 3. ‘Best’ has to mean what the treasurer's policy says is best. Not what the model thinks. The treasurer sets the weights in advance: how much the business values P&L certainty, carry cost, working capital impact, permitted instruments, tenor limits, hedge accounting treatment. The tool scores against those priorities. It does not invent them. 4. Client data should never leave the client. Our preferred deployment is inside the client's own environment, using their approved stack and model of choice. The aim is not to move sensitive treasury data into a shared external setup, but to work with the controls the client already has. 5. Check the overall liquidity impact leaves sufficient available liquidity vs policy. Using swaps that roll every month may be cheapest but if a 10% currency shift leaves you short of liquidity, the strategy is the wrong one. 6. Every number has to be defensible. No black box. The maths is shown, the policy checks are explicit, the reasons a structure is rejected are stated. An analyst can walk the treasurer through it line by line, and the treasurer can take the same logic to the audit committee. 7. Compliance built in, not bolted on. Timestamped outputs, version control, operator and reviewer sign-off, a clear audit trail of what was recommended and why. The same discipline supports IFRS 9 hedge accounting analysis, which can be added on and links naturally to the cash flow forecasting work we do elsewhere (current projects underway across clients in Ireland, Switzerland, and the UK). Currency swaps and layered strategies were the gap last time I posted (link in the comments). Both are now in. Happy to show anyone who would find it useful. And would love to hear your thoughts on other functionalities you’d like us to work on.

FX swaps. The instrument every treasurer uses and almost nobody fully prices. An FX swap is two legs (the near leg and the far leg). You sell a currency at spot today and buy it back at a predetermined forward rate on a fixed date. Simple in execution. Not simple in risk. Five things you need to understand before you roll another FX swap book. 1. What it actually is Two simultaneous transactions. Near leg: exchange currencies at today's spot rate. Far leg: reverse the exchange at a pre-agreed forward rate. No net FX exposure on the principal – both rates are locked at inception. What changes is the cost of carry embedded in those forward points. 2. How it is priced Forward points are driven by the interest rate differential between the two currencies, not by anyone's view on where spot is going. If AUD rates are higher than USD rates, AUD trades at a forward discount. You pay that differential to hold the hedge. This is covered interest parity. It is not negotiable. What is negotiable is the bid/offer spread, and that matters more than most treasuries realise. 3. Roll risk: the exposure that builds slowly and continuously Most FX swaps are short-dated – one week to three months. That means the hedge is not a set-and-forget. It is a rolling programme. Each time you roll, you reprice at whatever the forward points are on that day. If rate differentials have moved, your hedging cost has moved. If the market is stressed, your cost has moved sharply. The roll cliff – when a large notional comes due in a dysfunctional market –is where FX swap programmes genuinely fail. 4. Collateral: not as simple as it looks FX swaps sit under ISDA agreements with CSA margining. Variation margin moves with MTM. For cleared trades, initial margin adds a standing liquidity drag. The rehypothecation of posted collateral introduces counterparty credit exposure that sits quietly in the background until it doesn't. Short tenor does not mean zero operational complexity. 5. Where it breaks Dollar shortage events – GFC, March 2020 – push forward points to levels that make hedging economically irrational. Bank counterparties pull lines precisely when notional volumes are highest and alternatives are fewest. A programme built on the assumption of continuous market access is not a hedged programme. It is a programme that works until it doesn't. FX swaps are the right tool for managing short-dated currency exposure. The structure is sound. The risk is in treating the roll as automatic and the cost as fixed. parabellumadvisors.com

𝗧𝗵𝗲 𝗠𝗶𝗻𝗶𝗺𝘂𝗺 𝗩𝗮𝗿𝗶𝗮𝗻𝗰𝗲 𝗛𝗲𝗱𝗴𝗲 𝗶𝗻 𝗦𝗶𝗺𝗽𝗹𝗲 𝗧𝗲𝗿𝗺𝘀 𝗖𝗼𝗻𝘁𝗲𝘅𝘁: Long a foreign asset = long the foreign currency When a domestic investor buys an asset denominated in a foreign currency (FC), they are: • Long the asset (e.g., a Japanese bond) • Long the foreign currency (e.g., JPY) 𝗘𝘅𝗮𝗺𝗽𝗹𝗲: a U.S. investor buying a German bond (in EUR) • They are long the EUR bond • Therefore, long EUR / short USD This exposes them to two risks: 1. The market risk of the asset (interest rates, spread, duration, etc.) 2. Currency risk (EUR/USD fluctuations) 𝗢𝗯𝗷𝗲𝗰𝘁𝗶𝘃𝗲: 𝗛𝗲𝗱𝗴𝗲 𝘁𝗵𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝗰𝘆 𝗿𝗶𝘀𝗸 𝘃𝗶𝗮 𝗠𝗩𝗛𝗥 The Minimum-Variance Hedge Ratio (MVHR) is used to determine the optimal size of the currency hedge (often with FX forwards or futures) in order to minimize the variance of the portfolio expressed in domestic currency. 𝗘𝗺𝗽𝗶𝗿𝗶𝗰𝗮𝗹 𝗲𝘀𝘁𝗶𝗺𝗮𝘁𝗶𝗼𝗻 𝘃𝗶𝗮 𝗹𝗶𝗻𝗲𝗮𝗿 𝗿𝗲𝗴𝗿𝗲𝘀𝘀𝗶𝗼𝗻 MVHR can be estimated by performing a linear regression of the portfolio return (in local currency) on the foreign currency return: 𝗥𝗲𝗴𝗿𝗲𝘀𝘀𝗶𝗼𝗻 𝗳𝗼𝗿𝗺: R_port = alpha + beta × R_FX + error Where: • R_port = return of the foreign portfolio expressed in the local currency • R_FX = return of the foreign currency against the local currency • beta = sensitivity coefficient of the portfolio to FX changes (this is the estimated MVHR) • alpha = constant (not used for the hedge) • error = random noise 𝗜𝗻𝘁𝗲𝗿𝗽𝗿𝗲𝘁𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗯𝗲𝘁𝗮: • beta = 1 → hedge 100% of the FX exposure • beta > 1 → hedge more than 100% (over-hedge) • beta < 1 → hedge less (under-hedge) Analytical formula (derived from beta): Beta = Cov(R_FC, R_FX) / Var(R_FX)   = Corr(R_FC, R_FX) × (σ_FC / σ_FX) Where: • Corr(R_FC, R_FX) = correlation between the asset return and the currency return • σ_FC = volatility of the asset return • σ_FX = volatility of the currency return This analytical “formula” is simply a rewrite of the regression beta. It relies on strong statistical assumptions (stationarity, homoscedasticity, etc.) which are often violated in practice. 𝗪𝗵𝘆 𝗳𝗶𝘅𝗲𝗱-𝗶𝗻𝗰𝗼𝗺𝗲 𝗽𝗿𝗼𝗱𝘂𝗰𝘁𝘀 𝗼𝗳𝘁𝗲𝗻 𝗿𝗲𝗾𝘂𝗶𝗿𝗲 𝗺𝗮𝘅𝗶𝗺𝘂𝗺 𝗵𝗲𝗱𝗴𝗲 (𝗠𝗩𝗛𝗥 > 𝟭) Fixed-income assets (bonds) often have a negative correlation between their return and the foreign currency: 𝗘𝘅𝗽𝗹𝗮𝗻𝗮𝘁𝗶𝗼𝗻: • When interest rates rise in the foreign country: • Bond prices fall → yields rise • The currency may depreciate due to negative economic outlooks • Result: FC return ↑, FC currency ↓ → negative correlation • This increases the variance of the portfolio • To reduce this variance, the statistical model recommends a higher hedge 𝗘𝘅𝗮𝗺𝗽𝗹𝗲: Suppose the regression yields: R_port = 0.001 + 1.25 × R_FX + error Here, MVHR = 1.25 The investor should hedge 125% of the FX exposure.

Issue 10: Navigating "Elusive" Hedging Structures Advising on hedging transactions can be particularly challenging due to their complexity. Typically, in response to VND/USD depreciation, holders of VND seek hedging solutions to mitigate foreign exchange risks - for instance, a Vietnamese borrower with a USD loan would engage in a cross-currency swap to manage currency and interest rate risks, while an offshore investor in VND bonds would use forward contracts to protect their returns. Below is an overview of the relevant Vietnamese regulations: (1) Onshore Borrower/Issuer Perspective: (+) Onshore borrowers are allowed to enter into currency and cross-currency swaps (and other hedging products) with licensed Vietnamese banks or foreign bank branches. However, these products are generally suitable only for smaller loans due to the limited USD reserve capacity of Vietnamese banks compared to foreign banks. (+) Under current FX regulations, onshore borrowers cannot hedge directly with foreign financial institutions or banks. However, for large-scale project financing, onshore borrowers may apply for special approval from the State Bank of Vietnam (SBV), which is granted on a case-by-case basis. (+) In offshore/onshore lending transactions, Vietnamese borrowers typically engage in back-to-back hedging with a foreign bank branch in Vietnam. This local branch then enters into a corresponding hedge with its parent bank. (2) Offshore Lender/Investor Perspective: (+) According to current laws, hedging through Vietnamese banks for VND bonds subscribed by foreign investors is restricted to government-guaranteed bonds only; private bonds do not qualify. (+) Offshore investors must seek non-deliverable forwards (NDFs) on the offshore market and factor in the associated hedging costs into the coupon or make-whole amounts. Notably, there is only a two-year forward FX market for USD/VND hedging available. This necessitates repricing after two years—a scenario likely unfavourable for issuers—which can be addressed by implementing refinancing options every two years.

Accounting for Foreign Currency Transactions and Exchange Differences Recent movements in the kwacha illustrate just how material foreign exchange effects have become in both financial reporting and performance analysis. A comparison of exchange rates across key dates highlights the scale of these movements. As at 3 June 2025, the kwacha traded at an average of 26.8092 against the US dollar. By 3 January 2026, it had strengthened to 22.0694, representing an appreciation of approximately 17.68%. This momentum has continued into mid-year, with the rate improving further to 17.8439 by 3 June 2026, reflecting a further 19.17% appreciation over six months and an overall year-on-year strengthening of approximately 33.45%. How should these changes be reflected in financial statements? In line with IAS 21 – The Effects of Changes in Foreign Exchange Rates, the accounting treatment is as follows: ✅ Monetary items (such as cash and cash equivalents, borrowings, receivables, and payables) are retranslated at the closing rate at the reporting date. ✅ Non-monetary items (such as property, plant, and equipment) are generally measured at the historical spot rate when the transaction occurred. The resulting foreign exchange differences on monetary items are recognized in profit or loss, except in limited circumstances where they are capitalized or recognized in other comprehensive income (e.g., certain net investment hedges). Although foreign exchange differences are often described as non-cash, their impact on financial results is far from negligible. With exchange rate movements exceeding 30% over a twelve-month period, these remeasurements can materially distort earnings and, in some cases, overshadow underlying operational performance. This reinforces an important point for both preparers and users of financial statements: financial reporting in a volatile currency environment requires a clear understanding of economic exposure, careful analysis of performance drivers, and the ability to distinguish between operational outcomes and the effects of exchange rate movements. Are you evaluating company performance, or simply measuring the impact of currency movements? #finance #ifrs #exchangerates #future

🇬🇭The Cedi’s Historic First‑Ever Annual Appreciation Against Major Trading Currencies 》The groundbreaking JoyNews Research (sourced from Bank of Ghana data), the Ghanaian cedi is poised for its inaugural annual appreciation against the US dollar following the recent currency redenomination. 》This landmark event signals a pivotal shift in Ghana’s macroeconomic landscape and offers deep insights into how exchange‑rate stability can drive trade dynamics and overall economic resilience. 🔍 Historical Context & Drivers of Appreciation: The chart tracks the cedi’s performance from 2008 to 2025 (Y‑T‑D), documenting years of depreciation and highlighting a projected +28% appreciation in 2025. The primary reasons behind this appreciation include: 1. Currency Redenomination: Simplifying the currency restored market confidence and reduced nominal exchange‑rate volatility. 2. Monetary Policy Tightening: The Bank of Ghana’s aggressive interest‑rate hikes and liquidity management curbed excess cedi supply, strengthening its value. 3. Improved External Balances: Enhanced export earnings (e.g., gold, cocoa) and increased foreign reserves bolstered support for the cedi. 4. Inflation Management: Lower inflation expectations improved real exchange‑rate stability, encouraging appreciation. 5. Investor Sentiment: Positive market perception of Ghana’s economic reforms attracted foreign capital inflows, boosting demand for the cedi. 💡 Economic Stabilization Effects - Inflation Mitigation: Appreciation lowers import costs, easing inflationary pressures and making consumer goods more affordable. - Investor Confidence: A stronger cedi enhances market trust, spurring foreign direct investment (FDI) and reinforcing financial stability. - Debt Efficiency: Reduces the local‑currency cost of external debt servicing, freeing fiscal resources for development initiatives. 📈 Trade & Sectoral Benefits: - Export Competitiveness: While a stronger currency can raise export prices, the stable environment encourages value‑added diversification and long‑term export growth. - Import Advantage: Cheaper imports reduce production costs for businesses and improve trade balances. - Sector Growth: Manufacturing, services, and agro‑processing benefit from predictable exchange rates, enabling better planning and investment. 🌍 Broader Economic Transformation: The cedi’s appreciation is a catalyst for structural economic change, positioning Ghana for sustainable trade relationships, improved fiscal health, and enhanced socio‑economic development. It reflects effective monetary policy execution and sets the stage for balanced growth. Joachim Owusu Afriyie, CA, MCITG, Msc Randolf Adjierteh #customsdiaries #globaltradeadvisory

Kwacha's Remarkable Rally Amid Strategic Economic Interventions and Its Implications In a surprising turn of events, the Kwacha has started the week with a significant rally against the US Dollar, marking a positive shift following Zambia's strategic economic interventions. This surge could be partially attributed to panic selling by dollar holders, eager to secure profits from earlier purchases or to minimise losses in anticipation of further Kwacha appreciation. This situation resembles a self-fulfilling prophecy, where the expectation of a stronger Kwacha boosts its demand and, consequently, its market value. This reflects the intricate relationship between market sentiment, policy decisions, and the fundamentals of currency valuation. However, the rapid appreciation of the Kwacha brings with it a set of mixed implications for Zambia's economy. On the one hand, a stronger Kwacha reduces the cost of imports, which can help in controlling inflation and making essential goods more affordable for Zambians. It also lessens the local currency burden of foreign debt, offering some relief to the government and businesses with external obligations. On the flip side, a rapidly appreciating Kwacha can pose challenges, especially for sectors reliant on exports. Exporters might find their products becoming more expensive and less competitive on the global market, potentially affecting Zambia's trade balance and foreign exchange earnings. This rapid currency movement can also make financial planning difficult for businesses and investors, who rely on predictable exchange rates for their economic decisions. These developments underscore the importance of policy measures aimed at ensuring a gradual and stable movement in the Kwacha's value, rather than erratic fluctuations. Stability in the exchange rate is crucial for enabling businesses to plan and make informed financial decisions, thereby fostering a conducive environment for economic growth. As Zambia continues to navigate its economic landscape, the recent Kwacha rally highlights the delicate balance required in economic management. It suggests that with careful and strategic planning, it's possible to achieve sustained currency stability and build economic resilience, but this must be coupled with policies that encourage gradual and predictable currency movements to support long-term economic planning and growth.