Introduction to this document

Foreign exchange report

If your business is committing itself to transactions (purchases, sales, assets, loans, etc.) in foreign currencies with exposure to rises and falls in those currencies, present a summary of the currency position and commitments, on a “months-a-head” basis, using a foreign exchange report.

Minimising the risk

If your sales roughly equal your purchases in a foreign currency you will normally have a few minor exchange gains and losses caused by timing differences in the receipts and payments. Consequently, if you maintain a bank account in that currency with an adequate balance you may be able to operate with little or no hedging.


If, however, you have an excess of purchases or sales in a foreign currency you will have to buy or sell forward in that currency (transactional hedging) and may wish to hedge against (i.e. minimise) any strong adverse movement in that currency. In such circumstances it’s best to present the board with a summary of the currency position and commitments, on a “months-a-head” basis, using a Foreign Exchange Report.



Hedging percentage trick

It is seldom possible to forecast foreign cash flows perfectly. To avoid this many businesses hedge a percentage of the expected exposure (e.g. 80% or 90%). The percentage you use in your Foreign Exchange Report will depend on the predictability of your cash flows, and given that you pay your suppliers out of cash received from customers, your sales forecast should dominate your calculations.