FX exposure tutorial
If you have assets or earnings in one currency but need to make payments in another, you’re exposed to the volatility of the currency markets. Find out how FX exposure works and get some ideas on how to help manage risks.
Managing FX exposure when holding many currencies
Currency exposure, or currency risk, is the result of changes in the price of one currency compared to another. Your exposure to foreign exchange (FX) market movements depends on:
- What currencies you hold
- The market volatility of those currencies
- How much of those currencies you hold.
While exchange rate fluctuations put the value of your money at risk, there are ways to effectively manage your exposure.
Managing FX exposure: a case study
Although this example is not real, it is a typical story based on the real-life clients we help every day.
Anna is an Italian national, currently working in London for a US oil company. She realised that she is holding many different currencies:
- US dollar denominated share options that she can exercise in 12 months time
- Sterling savings and the home she owns in London
- Australian dollars that she bought in 2011 and plans to convert when she moves back to Italy in 2 to 3 years’ time
- Savings in euros from when she was living in Italy.
Understanding her overall currency exposure
Anna calculates the overall split of all her assets to work out her currency exposure. She finds it to be:
- 60% US dollar
- 20% sterling
- 15% Australian dollar
- 5% euro.
She has noticed how volatile the Australian dollar, euro and sterling have been against the US dollar during the past 5 years. After speaking to a Barclays International Banking Treasury Specialist and doing her own research, Anna decides to reduce her exposure to the US dollar and Australian dollar and increase her exposure to the euro.
Keep on top of currency management with our foreign exchange service
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