International Currency Risk

Russia Is Now Selling Its Gold Reserves a Clear Sign of Monetary Stress Russia’s Central Bank has started selling sovereign gold directly to the domestic market a policy shift we haven’t seen before. Banks, state companies and investment firms can now buy gold straight from the state. Why? Because Moscow is running out of financial room. National Welfare Fund liquid assets dropped from $113.5B (2022) to $51.6B (2025) Gold reserves fell 57% Sanctions continue to bite The ruble needs support The budget needs cash urgently To stabilize the system, Russia may sell: 230 tons of gold in 2025 (~$30B) 115 tons in 2026 (~$15B) Short-term, this strengthens the ruble. Long-term, it weakens Russia’s financial resilience by draining its most trusted reserve asset. At the same time, emerging-market central banks are buying gold aggressively to diversify away from G7 financial risk — especially as talks continue about using Russia’s frozen assets. Out of the $300B frozen, $243B sits in Europe. The message is unmistakable: Gold is no longer just a store of value it’s a geopolitical weapon.

FX & Interest Rate Risk Management Cheat Sheet! 2 critical financial risks treasury teams manage are FX risk and Interest Rate Risk (IRR). If not properly managed, both can erode margins, distort earnings, and create instability in cashflow planning. Learn more: https://lnkd.in/gwSMHnRG Here is a concise framework you can use: 1. Foreign Exchange (FX) Risk Key FX Risk Types • Transactional FX Risk – Exposure from future contractual cashflows such as imports, exports, accounts receivable, and accounts payable. Impact: Margin volatility and cashflow uncertainty. • Translational FX Risk – FX impact when consolidating financial statements of foreign subsidiaries. Impact: Earnings volatility in the balance sheet and income statement. • Economic FX Risk – Long-term impact of exchange rate movements on competitiveness and pricing strategy. Impact: Potential market share erosion. Measurement & Monitoring You can track exposure using tools such as: • Net Open Position (NOP) – aggregate currency mismatch across inflows and outflows. • FX Sensitivity Analysis – EBITDA impact from ±5–10% currency movements. • Scenario Modeling – base, worst, and best exchange rate scenarios. Operational Mitigation (Natural Hedging) Before using derivatives, you can reduce exposure through: • Currency matching of receivables and payables • FX budget rates for pricing and procurement planning • Local currency settlement strategies • Procurement timing adjustments based on FX trend Financial Hedging Instruments When natural hedges are insufficient, you may use: • FX Forwards – lock in exchange rates for future obligations • FX Options – downside protection with upside participation • Cross-Currency Swaps – exchanging one currency for another Strong governance is essential, including hedge ratio policies, counterparty monitoring, hedge effectiveness testing, and board-approved FX policies. 2. Interest Rate Risk (IRR) Interest rate volatility affects borrowing costs and investment returns. Key IRR Types • Repricing Risk – mismatch between asset and liability maturities • Yield Curve Risk – changes in short- vs long-term rates affecting refinancing costs • Basis Risk – mismatch between benchmark indices (e.g., SOFR vs Prime) • Optionality Risk – early repayment or prepayment risk affecting expected cashflows Measurement Tools Treasury teams typically use: • Interest Rate Gap Analysis • Duration Analysis • Stress testing using ±100–200 bps scenarios IRR Hedging Instruments Common tools include: • Interest Rate Swaps – convert floating debt into fixed rates • Interest Rate Caps – set maximum borrowing cost • Interest Rate Floors – protect minimum investment returns • Collars – combine cap and floor for cost-controlled protection Treasury is really about protecting enterprise value from financial market volatility while maintaining stable margins and predictable cashflows. 📌 Repost & Share!

Currency fluctuations cost us $500K in ARR (-2%) in November. Here's how: For a long time, customers could only pay in USD via credit card at lemlist. But, 9 months ago, we enabled payments in EUR & GBP to make things easier for international customers. To keep things simple, we used a 1:1 conversion rate: 1$ = 1€ = 1£. Fast forward to today: 1/3rd of our revenue — $9M — is billed in EUR. So when the EUR dropped 6% against the USD, our ARR dropped by 6% * 33% = -2%. The interesting part? Our business actually grew in November. But the reported ARR took a hit due to currency shifts — something totally outside our control. It’s a reminder that as you scale, metrics aren’t just about performance. They can be shaped by external forces like currency rates, inflation, and broader macroeconomic trends. Back in my M&A days, we always adjusted for constant FX rates to see a business’s real growth. It stripped out the noise and let us focus on what actually mattered. Hope you'll find this valuable 🙏

Foreign Exchange Risk: Mitigating Uncertainties in Treasury Management Foreign exchange (FX) risk presents a unique set of challenges within the treasury operations of banks, especially those engaged in international transactions. As currency values fluctuate, they can significantly impact the bank's earnings and capital. Understanding and mitigating this risk is essential for maintaining the financial health and stability of an institution operating on a global scale. Treasury departments employ various strategies to hedge against FX risk. One common approach is the use of forward contracts, which allow banks to lock in exchange rates for future transactions, thereby neutralising the effect of adverse currency movements. By securing a predetermined rate, banks can plan their financial strategies with greater certainty and reduce the risk of exchange rate volatility affecting their profitability. Another tool at the disposal of treasuries is currency options. These financial derivatives provide banks with the right, but not the obligation, to buy or sell a specific amount of foreign currency at a predetermined price before a certain date. Options offer flexibility and protection against unfavourable exchange rate movements while allowing banks to benefit from favourable shifts. Natural hedging is yet another technique employed to manage FX risk. This involves offsetting exposure in one currency with exposure in the same or a correlated currency. By structuring operations or assets and liabilities in a manner that naturally offsets currency risks, banks can reduce their need for external hedging instruments, thereby lowering costs and complexity. The management of FX risk is not solely about protecting against potential losses; it is also about identifying and seizing opportunities that currency fluctuations may present. However, it is crucial that banks approach this with a conservative strategy, recognising the volatile nature of the forex market. A well-thought-out approach, combining accurate forecasting and diversified hedging techniques, can help banks navigate the complexities of currency exchange. The importance of FX risk management extends beyond the treasury department; it is a critical component of a bank's overall risk management strategy. A realistic and informed approach to foreign exchange can help a bank maintain financial stability, meet regulatory requirements, and support its international operations effectively. By delving into the intricacies of FX risk and its mitigation strategies, we can gain a deeper understanding of the global financial landscape. This knowledge is beneficial, ensuring that banks remain robust and resilient in the face of currency market volatility.

FX hedging has two hard problems. Most companies struggle with both. The first is identifying the exposure in the first place. When FX risk sits across ERPs, TMS platforms, spreadsheets and intercompany accounts, consolidating a clean picture of what you actually own is genuinely difficult. This was one of the first projects we worked on and we teach how to write a similar script to import data from spreadsheets and ERPs as an exercise we teach in our workshops. The second is deciding what to do with it. And that's what the video shows. Once you have your exposure profile, our agent evaluates eight hedging structures against your treasury policy constraints - testing carry cost, P&L volatility, working capital impact and hedge accounting treatment under IFRS 9 - and produces a documented recommendation with full reasoning. This is demo data, but the approach works in live environments with real cashflow profiles. Two things stood out when we built this. First, we built with transparency as a key feature. Every number in the output can be re-performed. The forward rate maths is shown, the policy checks are explicit, the rejection reasons are stated. An analyst can defend it to the Treasurer because they can see exactly how it was derived. Second - and this is a practical observation - a decision hierarchy is needed. We have configured for carry cost, P&L volatility and working capital tied up, but deciding how much weight to apply to each and limits will require some thought. Most treasury policies are written to give treasurers flexibility, which is sensible when humans are making judgement calls. However, if machines are going to make recommendations, those policies will need tighter parameters. This is the first Treasury Agent based demo video I've shared but am pleased with how it's working so wanted to share. It uses a mix of python for calculations and LLM for commentary. Most of the end-to-end problem is now solved: - Exposure identification. - Strategy recommendation. - Export of spot, forward, option and swap deals to a trading platform Currency swaps and layered strategies are next... #Treasury #FXHedging #AIinFinance #YourTreasury

Russia's macroeconomic resilience in 2024 hides deeper vulnerabilities as war drains its financial reserves. KSE Institute's latest report on the impact of sanctions on the Russian economy reveals a dual-layered narrative. On the surface, Russia's economic resilience appears robust, driven by strong fiscal revenues, a stable trade balance, and effective measures to support the ruble. However, beneath this facade, deepening structural imbalances are evident. Specifically, the depletion of the National Welfare Fund's liquid assets, reliance on the shadow fleet to evade energy sanctions, and the looming fiscal pressures suggest a brittle foundation. The recent Ukrainian offensive in Kursk could further strain Russia's resources, exacerbating costs for defense operations and triggering heightened economic uncertainty in the affected regions. The report outlines three areas of robustness. 1. External environment improves for Russia – In the first half of 2024, Russia's trade balance reached $68 billion, a 19% increase from the same period in 2023. The overall current account surplus rose to $41 billion, a 74% increase. Weaker non-oil exports were offset by lower imports and a smaller income and transfers deficit. Actions by the CBR and improved foreign currency inflows stabilized the ruble. 2. Energy sanctions face challenges – In June 2024, almost 90% of Russian seaborne crude oil exports were transported by shadow fleet tankers, further weakening the G7/EU price cap regime. As a result, Russian oil export earnings in the first half of 2024 increased by 22% compared to the same period in 2023. 3. No substantial fiscal constraints – In the first half of 2024, Russia's federal budget deficit reached 929 billion rubles, 58% of the full-year target and 60% less than the same period in 2023. Higher revenues from oil and gas (+69%) and non-oil and gas (+27%) more than covered the increased spending (+22%) due to higher war costs. However, war and sanctions have created meaningful pressure on macro buffers, building up longer term vulnerabilities. After spending almost $54 billion of the NWF’s liquid assets since the start of the full-scale invasion, only gold and yuan remain, which cannot easily be used at scale to finance the budget. This would force the regime to rely on higher domestic debt issuance, driving up borrowing costs. KSE Institute calls for a robust escalation in the enforcement of energy sanctions, particularly by expanding the designation of shadow fleet tankers that Russia uses to bypass the G7/EU oil price cap. The Institute emphasizes the need for increased international cooperation to freeze the $218 billion in foreign assets accumulated by Russian entities since the invasion. Additionally, it urges vigilant monitoring and strict enforcement against sanctioned vessels to uphold the integrity of the sanctions regime, thereby weakening Russia's economic capacity to sustain its war efforts.

The Dollar Not Oil Is The Real Story The Iran conflict has dominated the headlines, with the financial media primarily focusing on rising oil prices. While higher oil prices can certainly impact the economy, the dollar’s surge, which we hear little of, is an equally consequential market and economic development. Moreover, the appreciating dollar’s ripple effects are being felt across asset classes in ways that are easy to miss but unwise to ignore. A stronger dollar creates a headwind for US multinational corporations, whose overseas revenues are worth less when translated back into dollars. With roughly 40% of S&P 500 revenues generated outside the US, a sustained dollar appreciation will weigh on earnings. At the same time, dollar strength broadly suppresses commodity prices, which partially offsets the inflationary impulse from higher oil prices. This helps explain why gold and silver have struggled despite the favorable geopolitical backdrop for precious metals. The most underappreciated impact, however, is on developed and emerging markets. Prior to the Iranian conflict, those two sectors had been among the best performers. Moreover, their recent outperformance was closely linked to the dollar’s weakness. US investors buying foreign assets must convert their dollars into the foreign currency before investing. Thus, a stronger dollar works against their investment. Further, foreign companies that borrow in dollars will see their debt servicing costs rise when the dollar strengthens, regardless of any change in their local interest rates. This tightens global financial conditions and reduces capital flows into risk assets. Moreover, it can trigger currency crises in the most vulnerable economies.

A company makes a sale to a European customer for €1,000,000. At the time of the sale, the exchange rate is $1.10:€1, so the company expects to receive US$1,100,000. A few months later, when the customer pays, the euro has weakened to $1.00:€1. The company now receives $1,000,000. Nothing about the sale changed. The product was delivered. The customer paid in full. Yet the company effectively lost $100,000. Welcome to the reality of foreign currency risk. In this week’s newsletter, I explore: • Why companies transact in foreign currencies in the first place • How exchange rate changes can create unexpected gains or losses • How companies use derivatives to protect themselves from those risks • And how hedge accounting helps financial statements reflect the underlying strategy Understanding this intersection of global business, risk management, and accounting is a powerful part of financial acumen. If you work in accounting, finance, or leadership, this is a topic worth understanding. And I’m curious: Have you ever seen foreign currency movements materially impact a company’s financial results? #Accounting #FinancialAcumen #GlobalBusiness #FinanceLeadership #CPA

If trade settles local, what happens to your dollar bet. BRICS isn’t a headline. It’s scale plus plumbing. With Indonesia in and 11 partners around it, the bloc now accounts for about 45% of global GDP (PPP) and over half of the world’s people. The push is practical, not romantic—local currency settlement, not a single coin. That is already changing how money moves. Flows tell the story. Roughly 90% of India–Russia trade clears in local currencies. Russia–Iran is over 95% outside the dollar. Yuan’s share in China–Russia trade jumped from 4% to 95% since 2022. That’s not talk. That’s new rails. Rails are being laid fast. India has 123 Special Rupee Vostro Accounts across 30 countries. China’s CIPS and Russia’s SPFS keep ramping. A BRICS Local Currency Settlement Facility aims to double local-currency trade within three years. This is execution, not theory. Commodities are the weak spot for the dollar. More energy is priced in non-dollar contracts. Russian oil to Asia settles in local currencies. Saudi is testing yuan oil futures. Even Indian buyers pay for Russian coal in yuan without Chinese banks in the middle. When energy benchmarks splinter, the whole system shifts. Politics accelerates it. The Modi–Xi thaw is a hedge against tariff shock. Washington’s 25% hit on Indian goods and the threat of a 100% BRICS tariff forced a rethink. Flights, border trade, crisis hotlines—small steps with big intent. It’s insurance in a world where policy is a weapon. Risks are real. Currency volatility likely rises as pairs reset. “De-dollarization” is still distant, but holdings of Treasuries have been cut back as reserves diversify. Near-term tail risk remains a tariff jump toward that 100% line. Markets are not priced for a fast break. Hard positioning beats soft narratives. BRICS’ share of global GDP has already overtaken G7 ex-US. If more trade clears outside the dollar and more oil trades off-benchmark, then portfolio hedges, cash mixes, and liquidity plans need to change. Don’t wait for a press release. Move on the math. Are your currency hedges set for more chop? If settlement shifts, does your dollar funding still fit? What happens to energy beta if pricing splits? Could a 100% tariff shock hit before you rebalance? Are you sizing EM and commodities for this path? For more see our Nomura CIO Corner: https://lnkd.in/e4TCax_g thanks to the team pushing this with me: Tathagata Bhar Anuragh Balajee Dhrumil Talati Vaishnavi Gupta #BRICS #currencies #USD #commodities #energy #trade #EM #macro #portfolioconstruction #CIOCorner #Nomura

"Russia's central bank has put up its key interest rate to 15% to try to curb inflation and bolster a weak rouble. The higher-than-expected rate hike of two percentage points raises borrowing costs for the fourth time in a row. Globally the pace of price rises has been high, in part due to Russia's invasion of Ukraine. Inflation in Russia hit 6% in September. There has also been increased government spending in Russia as it pours resources into its war machine. The Bank of Russia, the country's central bank, has now raised rates by 7.5 percentage points since July as it seeks to get inflation back down to its 4% target. This includes an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy. "Current inflationary pressures have significantly increased to a level above the Bank of Russia's expectations," it said on Friday. Demand for goods and services was outpacing supply, and it said there was high lending growth. Supply chain disruption during the coronavirus pandemic helped push up prices, then Russia's invasion of Ukraine in February 2022 disrupted global food supplies and drove up energy costs. Food and energy price inflation have been major factors in pushing up prices in general across the world. Pressure has also been mounting on the Russian economy due to imports rising faster than exports and military spending growing for the Ukraine war. Russia was targeted by Western sanctions in response to its assault on Ukraine. The rouble plummeted after war first broke out, but was bolstered by capital controls and oil and gas exports. However, the currency has lost about a quarter of its value overall against the US dollar since the conflict began."