For businesses that operate internationally, how do shifting exchange rates directly influence their balance sheets?
In general, fluctuating exchange rates can impact cash flows and can inadvertently increase or decrease expected proceeds and/or costs. Our experience is that shareholders do not like to see a footnote in the financial statements of a corporation which indicate that earnings per share declined due to foreign currency losses. This could have been avoided by virtue of implementing a proper hedge. Companies are typically very good at what they do best, which is providing a specific product or service, and not speculating as to the direction of what exchange rates will be. How has the introduction of the Euro changed currency risk management? The introduction of the Euro has simplified the ability to effectively hedge cross-border businesses throughout Europe. Imagine, if you will, California having its own currency and then New York having its own currency. Imagine the problems if all of these currencies are changing in value relative to one another. Now imagine using only one currency. I
