3 Steps to Cut Cost with FX Exposure Netting

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If your investment portfolio contains multiple types of currency, you are likely already familiar with the associated risk. If one country’s currency drastically depreciates in value, you are stuck with a depreciating portfolio as well. While there will always be an element of risk associated with investing and working with foreign currencies, there are several steps you can take to mitigate the amount you have on the line.

Begin by converting all your receipts and transactions as you go. Do all your large-scale accounting in one currency. Sum up all receipts and receivables in your business’ base currency. Next, master more advanced conversion techniques by summing up receipts and receivables for each currency separately. Then execute a single hedge for each currency in your portfolio. Finally, implement FX exposure netting. Hedge functional currency pairs together. Over time, this greatly reduces your risk.

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Image Source: 401(K) 2012

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