Topic: Treasury

Subject: Foreign currency exchange strategies
Mike Stoniecki
Member: 2001
Submitted on 01-26-18 10:00 am

I would like to get ideas and principles for strategies on managing our non-profit organization's foreign currency risk.  Where do I go to learn pro's and con's of ways to manage foreign currency exposure.  Our situation is this:  a US-based 501c3 receives donations in USD, we fund operations of a children's home in Mexico.  The Mexican cash flow needs are rather steady month to month, with a couple exceptions for large expenditures in particular months.  As a risk control practice, we keep funds in USA, and fund the Mexican operation enough to operate comfortably, but to avoid any risk of funds being mismanaged in Mexico, or at risk with local bank practices in Mexico (eg, not allowing all pesos on deposit to be available for withdrawal).

I've started to get advice on laddering fx contracts as one way of eliminating any fx risk.  What principles should our finance committee, Treasurer consider, and how would we present them to our Board- benefits, risks, etc.


Mike Stoniecki


Mark Kirsch
Member: 2005
Posts: 2

Subject: Re:Foreign currency exchange strategies

Submitted on 02-05-18 2:57 pm.



Having spent a number of years mitigating FX risk for large corporates, I fully understand the issues that you are facing.  Having a good idea of the projected cash needs of the Mexico operation is a tremendous asset.  I would like to understnad the guidelines which you have developed to govern the FX operations first.  Those policies/guidelines will dictate what the board deem acceptable and unaccepotable.  As a fidicuary, I think you need to consider thius as you move forward.

Regarding your question, many years ago research was conducted by Greenwich Associates regarding mitigating FX risk.  One of the most effective strategies was "dollar cost averaging".  Essentially you decide on the number of periods that you wish to hedge and the time frame in which each hedge is to be executed.  Upon the maturity date, your "blended fx rate" will dictate how much USD needs to be turned over to your FX counterparty.


I'd be happy to discuss this with you one-on-one if you like.  Send me a message and we can arrange for a time to chat.


Mark Kirsch