Indy Telecom & Industrial Media

I was talking with someone at work the other day and we got talking about how companies should protect themselves against currency fluctuations. Given the recent conversation that’s been taking place on my article on the failing US Dollar, this was something that caught my attention.

So, how do you protect companies operating in more than one part of the globe from forex fluctuations?

One obvious way, of course, is to hedge your conversion, either by forwarding, spotting or swapping your contracts. This is usually the most effective way, but it does come with its own problems.

The second way is to have a reserve where open currency convertibility can happen, which while not oblivious to market fluctuations does let just your reserves take the beating.

The third way, depending on the country, is if you have free currency convertibility available (e.g. an American company operating in countries that allow free dollar convertibility w.r.t the local currency).

Of course, some economies by themselves tend to project a stable (or penned) value w.r.t other major currencies, in order to encourage investors and trade. China is the perfect example of this, where everything is pegged to their biggest consumer - the USA.

So, are there any other ways in which companies could protect themselves against such fluctuations. The reason, of course, is that the company that we were talking about wasn’t doing that good a job, and we were wondering if they were hedging at all, or if they were, they weren’t doing it properly.

Thoughts?