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FX volatility is main challenge to cross-border trade

One-fifth of small and medium-sized enterprises (SMEs) who took part in a currency risk outlook survey said they intend to increase their FX hedging activity in 2015. Almost half (48%) of the respondents said they will increase their level of international trade, despite global economic uncertainty.

Half of the US companies who said they will increase their hedging activity in 2015 cite overseas growth as the determining factor. This will have repercussions throughout the supply chain, as many companies will seek to minimise their exposure by passing risk on to their suppliers. The main strategies that companies in the survey plan to employ include:

  • passing the risk on to suppliers/customers (30%),
  • forward contracts (29%),
  • natural hedging via geography (5%),
  • futures (2%) and
  • options (2%).

A third of the respondents believe that currency volatility will increase compared to 2014 and 44% said it was the main impediment to successful international trade. The global events that most affected company risk mitigation strategy over the past 12 months included the following:

  • US economic policy (49%),
  • euro-zone issues (44%),
  • the drop in petroleum prices (27%) and
  • European Central Bank quantitative easing (22%).

On average, 38% of company revenue in 2015 is exposed to currency fluctuation – an increase up from 34% in 2014. AFEX's Christian Spaltenstein said in a news release: “As evidenced over the past year, even large multi-national companies can run into headwinds when attempting to play the market and deploy sophisticated hedges. We advocate that clients assume a long-term outlook for their business based on their revenue exposure and not get caught up in the daily currency swings, tempting as it is.”

The survey polled 465 companies and was carried out by AFEX, a non-bank provider of global payment and risk management solutions. The survey results can be read in full here.


This item appears in the following sections:
FX Management & Crypto
Buying & Selling FX
Risk Management
FX Hedging & Risk Management

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