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Top Tips for finance managers dealing with foreign exchange
Every quarter, Mango co-chairs the Overseas Special Interest Group (OSSIG) with the Charity Finance Group. Our latest meeting on Tuesday 28th March focused on Banking and Foreign Exchange for NGOs. During the meeting, we collaborated to come up with eight 'top tips' for finance managers dealing with foreign exchange.
- Forecast your cash-flows by currency looking at income and expenditure. It may also be useful to identify which currencies you spend in which tend to move in parallel with the US dollar, for example, so you can work out what hard currencies you should hold and at what levels.
- Use these cash-flows to plan your foreign exchange management, batching up needs to create bigger deals (which usually achieve better rates), and ensuring you hold the minimum necessary balances of currencies which are volatile or depreciating. Some currencies even have negative interest rates at present with the banks, e.g. Euro. Be careful to allow a margin of error if you aren’t sure about some of the cashflows in your forecast.
- Make transfers for expenditure in local currency where possible, as you will probably get a much better deal than if you send hard currency and exchange it into foreign currency at the receiving bank.
- When buying local currency to send, get competitive quotes from a range of providers, many organisations use the free 360T service to do this, but you can get quotes by phone or email.
- Spread your banking risk – don’t use only one bank for your organisation’s banking needs as they may ‘de-risk’ and close your account down without warning. This also adds to competitive pressure on your banks to achieve the best possible prices. Ask around other NGOs working in similar countries to you about banks they recommend.
- Get connected and share good practice in FX management – join groups like CFG’s OSSIG and attend the Mango free Treasury events that are sponsored by INTL FC Stone. Access the expertise offered by large INGOs with dedicated Treasury functions where they offer this – like the CFG’s Treasury Policy Forum.
- Share your FX risks and information with your donors. Try and negotiate risk-sharing or FX contingencies with donors. Explain the risks you face to your donor if you have to go outside the formal banking network to get funds to difficult places.
- Only hedge if you can comply with the requirements. If your cash-flow profile means to have certainty over income and expenditure flows, you and your donor may agree to manage risk by buying a suitable financial instrument. This is also known as hedging, but be very aware that if you do this there are additional compliance requirements you need to follow and you will need specialist advice about these.