Many companies trade significant amounts in foreign currency–often without a clear currency policy outlining how foreign exchange is managed and how currency risk is best hedged.
At kompasbank, we help you understand, manage, and hedge foreign exchange risk when doing business with customers and suppliers abroad.
Avoid unintended speculation and gain control over your foreign exchange risk.
Create a stable and predictable plan for your company’s currency needs.
Strengthen the foundation for accurate budgeting and financial planning.
Foreign exchange risk
In a globalized world, where companies increasingly trade with customers and suppliers across national borders, exchange rate risk constitutes a significant factor with considerable impact on profitability and competitiveness. Unexpected currency fluctuations can quickly have serious financial consequences for your business.
That’s why it is essential to continuously identify the risks associated with trading in a foreign currency. Effective and active management of your company’s currency risks can help provide a better foundation for budgeting and planning.
Book a non-binding consultation with one of our currency experts to gain insight into the potential risks associated with trading in a foreign currency – and get help identifying and managing them.
Currency hedging
When trading internationally, hedging your currency risk is essential to prevent your budget from being derailed by unexpected exchange rate fluctuations. Instead of speculating on the optimal rate, we help you implement a clear strategy that ensures ongoing coverage of your currency exposure and removes the uncertainty of rate guessing.
Ongoing assessment of needs for the next 1-4 quarters.
For example, hedging 80% of next quarter’s needs, 60% of the following, and so on
Entering forward contracts over time to secure an average rate.
Creates peace of mind and eliminates speculation.
Currency hedging helps reduce the risks that arise from trading with foreign markets. An effective way to achieve currency hedging is by entering into a foreign exchange contract. With a forward contract, your company can lock in the exchange rate for a future transaction in a foreign currency. This way, you minimize currency risk and gain certainty about the exact cost of an upcoming transaction.
A Danish company has purchased machinery from a U.S. supplier for 100,000 USD. The payment is due in three months, but the company wants to avoid the risk of the dollar appreciating, which would make the purchase more expensive in Danish kroner.
The company contacts its bank and enters into a forward contract. The bank offers a fixed exchange rate of 6.80 DKK/USD for three months.
Regardless of how the USD exchange rate develops, the company must pay DKK 680,000 (USD 100,000 × 6.80) at maturity. If the rate rises to 7.00, it saves DKK 20,000. If the rate falls to 6.60, the company could have paid less, but it avoids a potential additional cost.
FX Forwards
Exchange rates fluctuate constantly, significantly affecting companies trading with foreign partners. With forward exchange contracts, you can lock in the exchange rate for a future transaction, thereby protecting your business against unforeseen volatility. This not only provides financial security but also offers a stronger foundation for budgeting and planning.
Our new article explores how a FX Forward works in practice, the different types available, and how you can use one as part of your currency and risk management strategy.
FX policy
Whether you work in a smaller company with only a few foreign currency transactions per year or a large international corporation with significant exposure, we tailor the solution to your specific situation and needs. We guide you every step of the way and help you develop a targeted strategy for your company’s foreign exchange transactions.
Contact us to learn how we can help you develop a customized FX policy that provides clarity, protects against unforeseen currency fluctuations, and supports your company’s overall strategy.
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