Managing Foreign Currency Exposure

Foreign Exchange risks make speculators out of the most conservative managements.
Peter Drucker
Frontiers of Management, the New Realities

As a Board member of a private organization thundered and pounded a long term employee who had done the “mistake” of asking for a discussion on the rate of exchange at which his money will be transferred, the above words of Peter Drucker came to mind.

OLD WISDOM : A CASE OF US-VERSUS-THEM

Unless a company’s business is primarily the trading of currencies or commodities, the firm inevitably will lose, and heavily if it speculates in either. Yet foreign exchange risks make speculators out of the most conservative managements.
In this case, as the Civil war which escalated in July 2014 enters its 10th month, with each party thinking that they have to dig-in to make true gains, many foreign workers are caught in the mid of speculation by Companies.
An individual worker does not have the mechanisms –organizational resources to fall back upon . In this situation , if the Management falls back on the “Us-versus-them” mentality and uses the difficult situation to speculate on the Rates of their own workers who are risking many things by staying in a war-zone, one can only feel sorry for such a management.

KNOWN PREDICTABLE…INTERNATIONALIZING THE COMPANY’S FINANCES

“Sir, you did make accounts in Tunisia in 2011,” one long term employee pointed out how the company did internationalize their finances when the initial civil war against the previous Regime started.
“No! We have less reserves in that account and we do not receive the money at international bank rates,” the Board member made an assertion which may be partly true, but there are differences of shades of emphasis.
“When you receive money in Tunisia, from international insurance providers, to whom we professionals provide service within Libya, isn’t that money protected from the black market rates of exchange prevailing in current uncertain condition in Libya?”

The Board member just deflected the above assertion and started off on another tract.

Such known predictable –in the form of existence of insurance money in foreign banks should at least partly be provided to the long term foreign employees who are staying on.

A QUESTION OF MORALE

Instead, for this “Sin” they are threatened with dismissal.

“If you like , fine, otherwise, you can leave.”

Nice lesson on how to build morale.

ACTION POINT

Protect your business against foreign exchange risk by hedging our exposure. Individual employees should be given this option by the company management to make them feel more a part of the company rather than promoting an “Us-versus-them” mentality.

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