Deconstructing Hedging Complexity for SMEs

FX Risk Is Real and Can Be Devastating

Foreign exchange (FX) volatility continues to pose a significant financial risk for businesses operating internationally. While large corporations often have dedicated treasury teams and sophisticated risk management strategies, many small and medium-sized enterprises (SMEs) remain unprepared for currency fluctuations.

Recent global events have demonstrated how severe FX swings can impact companies' bottom lines:

• In 2023, major corporations like Adidas, BBVA, Citi, Dow Chemical, Halliburton, Puma, and Sherwin-Williams reported over $3.3 billion in FX losses due to the devaluation of the Argentine peso.
• Nigerian companies suffered FX losses amounting to a staggering N1.7 trillion in 2023, exacerbating financial distress in a challenging economic climate.
• Sapura Energy reported a net loss of RM5.2 million in Q2 2025, driven by RM101 million in forex losses, compared to a net profit of RM42.8 million the previous year.
• The collapse of the Turkish lira in late 2024 resulted in billions of dollars in losses for businesses operating in Turkey, particularly affecting import-reliant industries.
• The Japanese yen's sharp depreciation in early 2025 led to cost surges for SMEs importing raw materials, pushing several companies to the brink of insolvency.

These examples highlight the persistent and unpredictable nature of FX risk, which can erode profit margins, disrupt cash flows, and create significant financial instability for businesses of all sizes.

Why SMEs Often Neglect FX Risk Management

Despite the clear risks, many SMEs struggle to manage FX exposure effectively due to several factors:

1. Lack of expertise and resources – Assessing and implementing hedging strategies becomes challenging without in-house treasury teams or FX professionals.
2. Limited access to hedging instruments – Banks often impose minimum transaction sizes or collateral requirements that SMEs find difficult to meet.
3. Insufficient technology and data analytics – Effective FX risk management requires accurate forecasting and monitoring tools, which many SMEs lack.
4. Absence of formal risk management policies – Without a structured framework, FX decisions tend to be inconsistent and reactive.
5. Lack of awareness – Many SMEs assume that FX fluctuations will balance out over time or underestimate the potential financial impact.

A Simple Framework for FX Risk Management

Despite these challenges, SMEs can implement a straightforward yet practical approach to managing FX risk. The key is consistency and discipline rather than complexity. A successful FX risk management framework should include:

1. Developing a formal written policy that outlines hedging strategies, objectives, and risk thresholds.
2. Utilizing simple and effective hedging instruments such as forwards and options to protect against currency fluctuations.
3. Avoiding speculative trading and complex derivatives that may introduce unnecessary risk.
4. Clearly defining roles and responsibilities within the organization to ensure accountability.
5. Regularly reviewing and updating the FX strategy to align with market conditions and business objectives.

By implementing these principles, SMEs can safeguard their profits, reduce financial uncertainty, and build a stable foundation for international expansion.

Finmo : Your Technology Partner for Smarter FX Risk Management

Navigating FX risk doesn't have to be overwhelming. Finmo provides SMEs with a robust technological solution to streamline FX risk management and hedging strategies.

With Finmo, you gain:

• Real-time visibility and analytics of your FX exposure.
• Simplified hedging strategies that integrate seamlessly with your risk management policies.
• Access to competitive interbank liquidity and pricing, ensuring cost-efficient execution.
• Optimized hedging recommendations tailored to your specific business needs.

Don't let currency volatility dictate your financial stability. With Finmo, you can take control of your FX risk and protect your business from unexpected currency fluctuations.

Sign up today at www.finmo.net to explore how Finmo can help your business achieve effective FX risk management.