International charities lose millions in foreign exchange

Moneydrainweb

​New research shows how financial volatility affects major international charities

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8th December 2014 by Graham Martin 0 Comments

International charities have seen millions of pounds wiped from their balance sheets through foreign exchange volatility.

The likes of Greenpeace, Médecins Sans Frontières and Oxfam have all reported significant losses.

An analysis of the most recent annual reports of 10 of the world’s largest charities showed losses related to currency movements of up to £7 million.

In total, those reviewed lost a net total of £14.8m due to currency movements in their last reporting periods, a mean average loss of £1.5m.

It may not be possible to remove any downside but in adopting an appropriate strategy, charities can cap potential losses

The figures were revealed in new research from AFEX, a non-bank provider of global payment and risk management solutions.

Rachel Hollos, the company's global marketing director, said: “Any organisation that operates internationally is likely to face foreign exchange risk and for charities, which typically need to transfer funds around the world, often to countries experiencing periods of instability, those risks can be huge.

"It may not be possible to entirely remove any downside but in adopting an appropriate strategy, charities can cap their potential losses and maintain some upside if currencies move in their favour."

The majority of those charities reviewed – eight of the 10 – do explicitly reference their attempts to mitigate foreign exchange risk with the likes of foreign currency forward contracts.

Such efforts can backfire, however, if not executed correctly. In June this year Greenpeace reported a loss of some £3m after one of its employees took out currency contracts that speculated on a weak euro. The euro subsequently strengthened against the US dollar in the second half of 2013.

Mario Pisano, head of global treasury at AFEX, said: "With some exceptions, major charities should have a strong idea of what payments and fund transfers they are likely to be making across a given year. With those in mind they need to adopt a smart, pro-active approach to currency risk management.

"It's unlikely any single strategy will cover their risk entirely. We typically advise clients to combine forward contracts, options and buying in the market at the spot rate. Doing so creates a diversified currency portfolio with the obvious risk-management benefits."