Hedging FX risk: taking stock of the challenge for mid-caps and SMEs

The first output from ACCA's 2013 Trade Finance project is a research report produced in association with Kantox FX.

ACCA launched its Trade Finance research project in 2013 to explore the challenges involved in financing international trade and international businesses.

ACCA’s members are disproportionately represented in international businesses, and between Q1 2012 and Q1 2013 one in six (13%) of them were personally involved in raising trade finance for their organisations or clients. Both their experiences and the related literature suggest that this crucial part of the global economy is never far from problematic and remains vulnerable to sudden stops with far-reaching implications.

Hedging FX risk

The first output from our Trade Finance project is a research report produced in association with Kantox FX, the peer-to-peer foreign exchange (FX) hedging platform, and focuses on SMEs and mid-caps’ experiences with hedging foreign exchange exposures.

The research, based on a survey of over 100 SMEs and mid-caps, found that  businesses are substantially exposed to FX fluctuations but insufficiently hedged, rarely managing FX risk as rigorously as they would like to. Quantifying risks is challenging for SMEs and mid-caps with no in-house skills in this area, and some solutions can actually tie up valuable working capital. This is likely to become an even greater challenge under the influence of new regulations on bank capital and over-the-counter derivatives clearing.