Businesses want growth, but they also need financial certainty. Michael Bourque, Global CFO of Convera, knows these two demands rarely fit neatly together, and waiting for uncertainty to clear doesn’t make a solid strategy.
“The market’s going to do what it’s going to do,” he says. Businesses that wait for a calmer moment before managing currency risk are the ones most exposed when volatility hits.
In a new webinar with CFO Magazine, Bourque breaks down how to build a sensible FX risk management framework and why it’s essential to have a plan that holds up regardless of what currencies — or the headlines — do next.
What makes an FX risk management framework sensible
Bourque makes it clear that an effective FX risk framework shouldn’t depend on a single market view. “It’s dangerous to build a framework around a single market view or a single expectation around where currencies are heading,” he explains. Instead, the goal is to build a strategy that works across a range of outcomes.
That’s especially important for growing companies. Smaller businesses and those still expanding typically have less room to absorb a currency shock, making proactive risk management especially important.
Convera’s four-step risk management cycle
At Convera, the FX risk management framework follows four iterative steps:
- Identify and quantify FX exposure, such as mapping upcoming invoices or payables against home currencies to understand where margins are at risk.
- Develop a currency hedging strategy, which means setting concrete goals like a target exchange rate or the percentage of a payment to protect, backed by clear governance around who makes those decisions.
- Implement the strategy by selecting the hedging tools that actually match the exposure, whether that’s forward contracts or FX options.
- Review the outcomes as market conditions and growth plans shift.
Businesses tend to skip the final step. As Bourque points out, too many companies treat their FX policy as a document they write once and file away forever. In reality, risk management should be a living process that adapts as conditions — and growth plans — change.
Taking a defensive approach to FX, not a predictive one
The goal of a sensible FX risk management framework is to support a business strategy, not just to beat the market or capture the best rates. That means decisions tend to revolve around three things:
- Known exposure
- Budgeted exchange rates
- Business objectives
If a business has future foreign currency obligations and limited appetite for leaving them exposed, hedging may help manage that risk. If assumptions built into the budget are at risk, that’s a strong signal to act.
Where CFOs should focus to support business strategy
A defensive approach also means knowing what to do when conditions unexpectedly turn. Bourque advises looking for opportunities to lock in gains, restructure hedges where it makes sense, and preserve flexibility. However, CFOs should avoid making reactive decisions driven by fear. Freezing things entirely or rushing into action are both, in his view, mistakes.
Bourque points to the FX market’s response to geopolitical shocks, including recent US–Iran tensions, as an example. Businesses with an established hedging program had room to ride out the initial volatility, while those without one often ended up delaying decisions until the opportunity had passed.
Ultimately, a well-designed FX program delivers confidence around the financial outcomes that matter to the business. For management teams and boards, that matters more than trying to guarantee the best possible market outcome. As Bourque explains, success should be measured by whether the business hit its objectives and gains visibility into forecasts.
How Identity Digital built certainty into its currency strategy
Identity Digital, a domain name company, earns a significant revenue stream in Australian dollars through a multi-year government contract, while carrying regular CAD expenses tied to its Canadian office. Previously, it exchanged both currencies on the spot market, so financial results moved for reasons unrelated to the actual business performance.
When the Australian contract was renewed for another multi-year term, the company partnered with Convera to build a defensive FX risk management program around forward contracts, locking in AUD and CAD rates up to 12 months out. Identity Digital now hedges 100% of its net AUD revenue and most of its monthly CAD expenses — giving the finance team a fixed rate to plan around instead of a moving target.
Learn how Identity Digital manages FX risk with Convera.
Ready to build your own FX risk management framework? Get in touch with our FX specialists and learn about managing currency risk with confidence amid rapidly changing market conditions.
