Most businesses with international exposure have some approach to managing FX risk, even if informal. But despite currency movements directly impacting pricing, supplier contracts and cash flow forecasts, most will simply roll forward their current budget rate methodology into 2026.
This approach carries risk as fiscal pressures mount and central banks navigate policy trade-offs. Before locking in your 2026 budget rates (the exchange rates that underpin your financial planning) take these five steps to uncover whether your current FX approach needs adjustment or redesign.
1. Calculate your 2025 hedge performance against budget
Did your hedges outperform or underperform your budget rate and what was the cost impact? This reveals whether you were exposed.
2. Assess your forecast accuracy patterns
How far ahead could you accurately predict FX needs? Three months? Six? Your hedging horizon should match your forecast reliability, not your aspirations.
3. Review counterparty exposures & mark-to-market positions
What’s your outstanding exposure with each FX provider and how close are you to credit limits? Recent disruptions demonstrated that businesses caught off guard can face unexpected liquidity pressure.
4. Evaluate whether you over-hedged or under-hedged against policy
Did you hedge too much and miss favourable moves, or too little and get caught by volatility? This identifies whether your policy needs adjustment or better adherence.
5. Document which external events caught you off-guard
Did new customers change your currency exposure mid-year? Did 2025 market moves exceed what your policy anticipated? Identifying gaps helps you decide where your 2026 strategy needs flexibility.
Need support with your FX strategy? Let’s talk.
Email us: business@lumonpay.com
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