The Currency Hedge
Discussing the cost of currency risk, with Wolfgang Koester, FireApps
Airtime: Fri. Jul. 16 2010 | :33:0 10 ET
TOM HUDSON: With the U.S. economic outlook calling for slow growth, many companies are looking overseas to fuel future profits. But making a buck in a foreign land does not necessarily translate into a dollar back home. Tonight's "Street Critique" guest is Wolfgang Koester. He's CEO at Fireapps. That's a firm that works with companies to manage their exposure to the ups and downs of the U.S. dollar. Wolfgang, welcome to NIGHTLY BUSINESS REPORT.
WOLFGANG KOESTER, CEO, FIREAPPS: Good to see you again, Tom.
HUDSON: What do you think the currency environment is for a company doing business overseas?
KOESTER: It is volatile and it's quite frankly, in the last five years have been the most volatile and therefore most challenging for these corporations which is a bit of a shame because of lot of corporations, as we've been seeing through the earnings, are doing a pretty good job managing their companies through the economics, yet they're getting impacted significantly by what they don't need to be getting impacted by, foreign exchange.
AFP Risk Newsletter
by Wolfgang Koester
How ironic is it that in November, when the business press was on the verge of declaring the U.S. dollar’s demise, the greenback suddenly halted its skid and began to resurge? From November 25 through mid-December, the U.S. dollar index rose 3.09 percent. That’s a substantial move over a short time period. More importantly, it represents a break in a long-term downward dollar trend over the last six months that looked to have no end in sight.
>> Read the full article (PDF)
By Vincent Ryan
CFO Magazine
In volatile markets, it pays to keep an eye on the foundations of effective hedging.
Recent fluctuations in currencies and commodity prices have once again highlighted the importance of hedging expertise. The dollar's continued rise against the euro, pound sterling, and Australian and Canadian dollars promises to eat into the operating income of companies that earn the bulk of their revenues in those geographies. Crude oil prices journeyed from the low $70s to almost $90, then dipped below $70 — all in four and a half months, making it difficult for companies of all types to forecast energy costs. Global sugar prices soared to historical highs earlier this year, then halved, wreaking havoc on the input costs of food producers.
Exposure to currency risk is widespread across industries. In a 2010 survey by the Association for Financial Professionals, 51% of organizations said they have an exposure to foreign-exchange risk, and 72% of them hedge their exposure. Only 13% of companies are exposed to agricultural commodity risk, but 80% of those companies said that exposure has a "significant" impact on profitability.
BY MICHAEL CASEY
Managing companies' exchange rate risks often involves more art than science, as is clear from a slew of earnings results after an especially volatile quarter in currency markets.
The problem is that many companies with large global operations still manage their myriad currency exposures with traditional, backward-looking strategies--rather than using new technologies that would allow them to adjust to exchange rate changes in a more dynamic, real-time fashion.
Companies are generally loath to provide sensitive information on their hedging strategies, which makes it hard for analysts to predict how currency volatility will affect their profits. So after a quarter like ...
