Handling exchange rate risks
Uncertainty about the euro zone and stability problems of euro countries', as well as Hungary's risk rating and the downgrade of the Hungarian sovereign debt has caused foreign exchange (FX) rates to become highly volatile in the past year.
Such extreme volatility can seriously affect the operation of companies which are internationally active or making FX denominated business in Hungary, and might lead to risks and losses hardly foreseeable.
There are a number of potential solutions to reduce uncertainty and improve predictability in financial planning. In order to choose the best tool or combination of tools one has to consider the advantages and disadvantages, and conduct an in-depth preliminary analysis on the available options suiting the company’s business model. Before implementation, financial modeling and a preliminary feasibility study are able to assess the expected outcome and whether the selected solutions are feasible in all aspects.
In addition to the above, for the optimal solution – and contrary to past practices focusing only on risk management issues – many aspects (risk management, accounting, finance, tax) should be considered when dealing with foreign exchange risk.
- Identification of the best alternatives to reduce risks related to FX rate volatility
- Preparation of a feasibility study
- Advising on the restructuring of the business model
- Advising on the implementation of the designed risk management system