Balance sheet adjustment method. Assets and liabilities expressed in foreign currencies are easily affected by exchange rate fluctuations. The change of currency value may lead to the decrease of profit or the increase of debt after conversion into local currency. Asset-liability management is to rearrange or convert these accounts into currencies that are most likely to maintain their own value or even increase their value. The core of this method is: try to hold coin assets or soft currency debts. Compared with the local currency or another base currency, the value of coins tends to be constant or rising, while the value of soft coins tends to decline. As a part of normal business, the implementation of asset-liability adjustment strategy is conducive to enterprises to take natural preventive measures against transaction risks. For example, in the lending law, when an enterprise has accounts receivable expressed in foreign currency, it can borrow a foreign currency fund equal to the accounts receivable to prevent transaction risks.
Choose a favorable pricing currency. The size of foreign exchange risk is closely related to foreign currency, and the foreign exchange risk will be different with different currencies of receipt and payment in the transaction. In foreign exchange receipts and payments, in principle, we should strive to collect foreign exchange in hard currency and pay foreign exchange in soft currency. For example, in import and export trade, we strive to use soft currency for import payment and hard currency for export collection; When borrowing foreign capital, try to borrow soft currency, which is less risky.
Add a currency protection clause to the contract. At the time of transaction negotiation, appropriate hedging clauses shall be concluded in the contract through negotiation between both parties to prevent the risk of exchange rate fluctuation. There are many kinds of currency hedging clauses, and there is no fixed model. But no matter what hedging method is adopted, as long as both parties agree, the purpose of hedging can be achieved. There are mainly gold hedging, hard currency hedging and "basket" currency hedging. At present, hard currency hedging clauses are generally adopted in contracts. There are three points to be paid attention to when concluding such hedging clauses: first, it is necessary to clearly agree on the currency to be paid when the payment is due; Secondly, choose another hard currency to preserve value; Finally, indicate the spot exchange rate of the settlement currency and the hedging currency at the time of signing the contract in the contract. If the depreciation of the settlement currency exceeds the scope stipulated in the contract, the payment will be adjusted according to the new exchange rate between the settlement currency and the hedging currency, so that it is still equal to the original amount of the hedging currency converted in the contract.
Adjust the value of commodities appropriately. In import and export trade, it is generally necessary to adhere to the principle of receiving currency for export and paying soft currency for import, but sometimes for some reasons, exports have to be traded in soft currency and imports in hard currency, so there are foreign exchange risks. In order to prevent risks, price adjustment method can be adopted, which mainly includes price increase method and price reduction method.
Prevent transaction risks through risk allocation. Refers to the risk sharing caused by exchange rate changes between the two parties according to the signed agreement. The main process is to determine the basic price and exchange rate of the product, determine the method and time to adjust the basic exchange rate, determine the range of exchange rate change according to the basic exchange rate, determine the proportion of exchange rate change risk shared by both parties, and adjust the basic price of the product through consultation according to the situation.
Grasp the time of receipt and payment flexibly and guard against the risk of foreign exchange transactions. In the rapidly changing international financial market, early or late payment will have different benefits and influences on foreign trade enterprises. Therefore, enterprises should flexibly grasp the time of receipt and payment according to the actual situation. As an exporter, when the denominated currency is firm, that is, the exchange rate is on the rise, the later the collection date is, the more exchange rate gains can be received. Therefore, the enterprise should delay the delivery as much as possible within the performance period stipulated in the contract, or provide credit to the foreign party to extend the export bill period. If the exchange rate shows a downward trend, we should strive to settle foreign exchange in advance, that is, speed up the performance of the contract, such as collecting foreign exchange in advance before the shipment of goods. Of course, this can only be done on the basis of mutual consent. On the contrary, when an enterprise acts as an importer, it will make corresponding adjustments. Because using this method, the interests of the enterprise are the losses of the foreign party, so it is not easy to be accepted by the foreign party. But enterprises should understand this, on the one hand, they can avoid the risk of foreign exchange collection when conditions permit, on the other hand, they can prevent the risk from being passed on to our enterprises. In addition to internal management technology, enterprises also have many external hedging tools to choose from, such as forward foreign exchange contracts and foreign exchange options trading. Developing foreign exchange trading is a practical, direct and scientific method.
Prevent trading risks through forward foreign exchange trading. When conducting forward foreign exchange transactions, enterprises sign contracts with banks, which stipulate the name, amount, forward exchange rate and delivery date of the currency sold by the buyer. The exchange rate remains unchanged from signing to delivery, which can prevent the risk of future exchange rate changes. A variant of forward foreign exchange trading is a forward contract with date options, which allows enterprises to conduct foreign exchange trading on any day within a predetermined time range. Of course, the forward foreign exchange transaction itself is risky, and whether an enterprise can avoid losses and gain benefits depends on whether the exchange rate forecast is correct. At the same time, forward foreign exchange transactions not only avoid the risk of unfavorable exchange rate changes, but also lose the profit opportunities brought by favorable exchange rate changes.
Preventing trading risks through foreign exchange option trading. The so-called foreign exchange option is a contract signed by both parties to the foreign exchange option transaction in advance on whether to buy or sell a certain currency in the future at the agreed exchange rate. The foreign exchange option contract gives the option buyer the right, but has no obligation. Options are divided into call options and put options. For hedgers, foreign exchange options have three incomparable advantages over other hedging methods. First, limit the foreign exchange risk to option insurance premium; Second, keep the opportunity of profit; Third, it enhances the flexibility of risk management. One of the biggest mistakes that the finance director or finance department can make is not working closely with their business departments to check the past foreign exchange risks.
No matter what type of foreign exchange risk, it is important to ensure that the risk management strategy is consistent with the overall goal of the enterprise. This also means that enterprises can avoid cash flow risks, which may endanger their ability to pursue strategic needs.
Analyze existing data
Although foreign exchange risk management is a tedious manual process, it is important to know your currency risks and how to monitor them. Because of the integrity of data, foreign exchange risk management is the most difficult financial work. Therefore, analyzing the existing data is the most critical part of hedging.
Basic analysis focuses on important economic data and political news to determine the trend of currency value. All money markets are interrelated, which will help to understand the trend of foreign exchange market economy driven by current events and make better decisions. Risk appetite, global stock market and commodity market will also affect the foreign exchange market, especially in countries with investment inflows and outflows. Other contents of the basic analysis include the decision of monetary policy, the interest rate market and the changes of tax administration and supervision laws.
Some companies may adopt a comprehensive risk management system, especially when the risk level is high or the management takes a defensive attitude. Comprehensive risk and impact analysis should consider economic, regulatory and operational factors.
However, due to the low degree of risk, the cost of comprehensive risk management strategy is greater than the income, or the management chooses to take a speculative approach to deal with exchange rate changes. In both cases, it is important to actively formulate your hedging policy to cope with market development, and to have appropriate media in your company to quickly approve the hedging policy at an appropriate level.
Formulate a hedging policy
Once the risk is determined and evaluated, the next thing to consider is to determine which hedging strategies can better enable the company to achieve its strategic objectives within its risk preference. After determining these, it is very important for the company to formulate hedging policies according to these objectives. Once the hedging strategy is determined, the content of creating the strategy should be straightforward, because the strategy should stipulate the hedging strategy in the following aspects: what financial instruments to use, who has the right to use these instruments, the division of responsibilities, and how to manage and control the strategy, including reporting to the senior manager and the board of directors.
Having a good foreign exchange strategy is crucial to the success of a global enterprise. Use the existing data to select the foreign exchange hedging method that best meets the company's objectives.