Balance Sheet hedging is the currency management approach to mitigate risks to the value of your balance sheet items, such as accounts payable and receivable.
A balance sheet hedging programme addresses one of the more visible aspects of how foreign currencies can impact your business and is often the easiest to implement. It aims to remove or reduce the “noise” of the FX gains and losses that often appear in the financial statements of companies that do business in multiple currencies.
Core Objective of Balance Sheet Hedging
- Minimising the FX impact on financial statements: The core purpose of balance sheet hedging is to minimise the impact of FX gains and losses or, more broadly, the effects of FX measurement on the financial statements. This stabilisation is crucial for minimising the variability in reported earnings and equity due to changes in exchange rates.
- Improving transparency of cross-border commercial activity: By effectively implementing a balance sheet hedging programme, businesses can reduce the effect of currency fluctuations on specific commercial activity in a given period.
Comprehensive Training Video: FX Balance Sheet Hedging (15 Minutes)
A practical guide to Balance Sheet hedging
Download our Balance Sheet Hedging guide to learn the practical steps for hedging your Balance Sheet from FX risks.