FX volatility is often omitted from financial planning, usually because the owner of the budget 'drafts' the FX assumptions with little research or uses the banks' consensus view of the FX market.

However, what if the forecasted average rate is materially higher than FX rate at which the company can currently hedge? Is it really appropriate to use a budget level which is currently unachievable? This single snapshot of a market sentiment takes no account of future volatility.

Consultancies, such as Klarity FX, recommend using Cash Flow at Risk simulations using implied volatility to demonstrate the impact of volatility on business budgets. Then it becomes much clearer as to what hedges or options are needed to minimise adverse impacts from currency swings.