‘Locking in’ USD: Hedging in Growth Mode
Currency volatility is driving companies to implement hedge programs earlier and earlier in their growth cycles, with eyes on “locking in” current rates to protect their financials.
The root cause is relatively easy to point out: As large FX swings make headlines in both the mass media and the business press, emerging companies are paying more attention to their exposures (and potential exposures). As international sales/resources are facilitating rapid growth, the currencies that are driving that activity are threatening the results and financial discipline that investors demand, whether they are preparing for an IPO or are recently public.
Unlike many mature companies that focus on balance sheet exposures and smoothing of rate impacts, these younger companies are often hedging to ensure the successful completion of a particular project on an investor-funded budget. On the cost side, they could be undergoing pharmaceutical trials in Europe, or funding an R&D initiative in India. On the sales side, they might have a high-value customer that demands sales terms in their local currency.
Where the current strong dollar offers the ability to pay for significantly more bandwidth than the same amount of USD investment would have allowed a couple of years ago, it could also have erased any margin on a foreign denominated sale. Rather than hoping to get lucky with exchange rates, young companies are embracing hedges to increase certainty and protect their financial results.
If you’re investigating locking in the dollar value of your international revenues or costs for your growing company, we’d be happy to help you navigate the world of hedging: exposure collection, policy decisions, journal entry prep, etc.
Feel free to contact us today, or call 408-350-8580 to talk to one of our FX hedge program experts today.