Shopping for stock
Our Entrepreneur’s story of self-inquiry did not end after a period of gambling. In fact, he took further steps in gaining experience as a currency management specialist.
He opened a line of credit and bought currency “on margin” when he thought the currency was at a low level. Unfortunately, this was an additional cost to his company in the value of the invoices he issued. In addition to purchasing, time was also taken up with recording the rates at which currencies were converted in exchange for actively analyzing charts and indicators.
Opening a line of credit, analyzing the company’s invoice data was having an effect, but not on the scale of thinking that these currency actions represented a concrete data-driven currency risk management policy, rather they were still some sort of structured hunch, intuitive and vague. There was another problem – cost. The picture looked as follows: A used line of credit, that’s money in an account in another currency and invoices for using the limit. The capital was frozen as collateral for the inability to manage currency risk and use forward instruments.
The incompetence of our Entrepreneur began to accumulate adverse effects:
- first he tried to pass on the cost of currency fluctuations to the customer by raising prices – he got a warning from the Board that the company would not grow because we had too high prices;
- then he froze his capital by buying currency for stock – he received penalties in the form of invoices for freezing his capital and he himself reduced his company’s profit.
Something apparently positive was also disturbing – the bank advisor was delighted, because firstly the Entrepreneur used forwards, and secondly he had a credit line. The bank employee’s satisfaction and good cooperation allowed the Entrepreneur to pull the bank specialist over to his side …
Does your company face similar dilemmas related to FX risk management? Do you also lack knowledge and experience in this area?
Don’t waste your time and take advantage of our expertise:
- sign up for the free exchange rate risk management app
- schedule an individual meeting and manage your currencies without losses