Strategies for companies to hedge if their home currency is strengthening

When your home currency strengthens against foreign currencies, it creates both opportunities and challenges for businesses operating internationally. While a stronger currency makes imports cheaper and reduces the cost of foreign investments, it can significantly impact export competitiveness and the value of overseas revenues when converted back to your home currency. Companies need robust hedging strategies to protect their financial operations from these currency fluctuations.

According to research, banks can charge up to 4% on international transfers, and they often profit significantly from the spread between the mid-market rate and the conversion rate they offer to their customers ¹. Understanding how to navigate these challenges becomes critical for maintaining profitability in global markets.

Understanding the impact of a strengthening home currency

Effects on international operations

When your home currency appreciates, several immediate impacts affect your business operations. Export revenues decrease in value when converted back to your home currency, making your products more expensive for foreign buyers. This pricing pressure can reduce demand and market share in international markets.

Float, a US-based company with operations pegged to the US dollar, provides an interesting example of managing currency impacts. They introduced a make good exchange rate bonus for team members who experience an on-average drop in their monthly compensation over a 6-month period ². In one case, a team member named Sarah who lives in Melbourne and earns $10,000 USD per month lost up to $759 in a month, representing a 6% decrease in her income due to exchange rate fluctuations ².

Real-world cost implications

The financial impact extends beyond simple conversion rates. Float's operations manager discovered that Wise international transfer fees were adding up for the team, equating to roughly half a percent of the amount transferred, or $50 on a $10,000 payment ². These hidden costs compound the challenges of currency fluctuations.

Stockford Limited, a holding company for diverse organisations including viticulture, hotels, technology and property businesses with operations all over the world, traditionally used banking relationships for international money transfers ¹. After switching to more efficient currency management solutions, Stockford Limited's savings across the group over the last six-month period have been into USD six figures ¹.

Core hedging strategies for currency strength

Forward contracts and futures

Forward contracts allow companies to lock in exchange rates for future transactions, providing certainty in planning and budgeting. These instruments protect against adverse currency movements while sacrificing potential gains from favorable shifts. Companies can structure these contracts to match their specific payment schedules and amounts.

According to Michael Zelickson, director of Foreign Exchange at Regions Bank, if you sell abroad contractually, it is quite simple to make future contracts that match the payment dates listed there ³. This alignment ensures that hedging strategies directly correspond to actual business needs rather than speculative positions.

Natural hedging through operational adjustments

Natural hedging involves structuring your business operations to minimize currency exposure without using financial instruments. This might include matching revenues and expenses in the same currency, diversifying supplier bases across different currency zones, or establishing production facilities in key export markets.

Randy Lambeth, Managing Director of Financial Risk Management at Regions Bank, suggests a dual billing strategy that determines the cost of goods in both foreign currency and US dollars, which can lead to significant savings ³. This approach gives customers flexibility while protecting your margins.

Dollar cost averaging approach

Another approach to risk hedging, according to Lambeth, involves dividing regular payment obligations into quarters and covering the costs of the nearest quarter, which may cover 80 percent of the exchange risk, while 20 percent remains floating or unhedged ³. As each quarter approaches, companies increase the covered amount from 40 percent to 60 percent coverage in two quarters, leaving one quarter out, and to 80 percent in the nearest quarter ³.

Leveraging multi-currency accounts for protection

Benefits of holding multiple currencies

Multi-currency accounts provide businesses with the flexibility to hold, receive, and pay in various currencies without immediate conversion ⁴. This capability reduces conversion costs and allows companies to time their currency exchanges strategically.

Corporations can maintain balances in currencies that match their operational needs, reducing the frequency of conversions and associated fees. This approach is particularly valuable for businesses with regular international transactions or those operating in multiple markets simultaneously.

Strategic timing of conversions

Holding funds in multiple currencies allows businesses to convert when rates are favorable rather than being forced to convert at potentially disadvantageous times. This flexibility can result in substantial savings over time, especially for companies with significant international cash flows.

Float tracks the actual exchange rate processed per pay period and processes payments on the same day or the next business day of each month ². If the exchange rate drops the following pay period, they record the difference and compare the rate received to the average of the previous periods continuously over a 12-month rolling average ².

Technology solutions for currency management

Automated monitoring and alerts

Modern financial technology platforms offer sophisticated monitoring tools that track exchange rates in real-time and alert businesses to significant movements. These systems can automatically execute predetermined hedging strategies when specific thresholds are reached.

According to the 2025 Accounts Payable Automation Trends Report, 52% of AP professionals now spend fewer than ten hours per week processing invoices, down from 62% just a year ago ⁵. Manual entry of invoices into ERP or accounting systems has dropped significantly to 60%, a stark improvement from 85% in 2023 ⁵.

Integration with financial operations

Automated accounts payable systems can integrate currency management directly into payment workflows ⁶. This integration ensures that currency considerations are factored into every international transaction automatically.

The report also found that 64% of respondents highlighted stress caused by outdated processes as their biggest hurdle, while 40% pointed to strained vendor relationships as a major concern ⁵. Modern solutions address these challenges by streamlining both currency management and payment processes.

Case studies in successful currency hedging

McLaren Racing's approach

McLaren Racing, which has won 183 Formula 1 Grand Prix, three Indy 500s and the 24 Hours of Le Mans, modernized their cross-border payments to manage currency exposure effectively ⁷. Laura Bowden, who has been McLaren Racing's CFO since February 2020, oversees finance operations for a team that faces a cost cap of around US$150m per season ⁸.

McLaren Racing is a 70/30 joint venture between McLaren Group and two independent US-based shareholders, requiring sophisticated currency management across multiple jurisdictions ⁸. The team now takes part in the US IndyCar series, Formula E, the off-road Extreme E series, and an e-sports series, each with different currency exposures ⁸.

Stockford Limited's transformation

Will Wallis, Investment Director at Stockford Limited, has recommended their new currency management approach to numerous contacts and group companies ¹. All those who have used the recommended solution following Stockford Limited's recommendation have experienced immediate savings without any real effort involved ¹.

The company values the transparency of modern currency management services, with fees and exchange rates clearly displayed and communicated, keeping clients fully informed at each step of the transaction process ¹. Stockford Limited sees potential for these savings to increase in the future as they continue optimizing their approach ¹.

Building a comprehensive hedging framework

Risk assessment and tolerance

Every company must evaluate its specific currency exposure and determine appropriate risk tolerance levels. Companies are vulnerable to currency exchange risk if they purchase raw materials and finished goods or have suppliers outside their home country, sell products internationally, are subsidiaries of foreign parent companies, have offices or operations abroad, or purchase equipment internationally ³.

An increase in the value of the home currency could make goods more expensive and less attractive if they are quoted in that currency ³. Understanding these dynamics helps companies develop appropriate hedging strategies.

Policy development and implementation

Creating formal hedging policies ensures consistent approach across the organization. These policies should define acceptable hedging instruments, approval processes, and reporting requirements. Clear guidelines prevent unauthorized speculation while ensuring adequate protection.

Float reviews the total balance of up to the prior 6 pay cycles twice a year, and if a negative balance has accrued, the team member receives that amount as a make good bonus ². This systematic approach ensures fairness and transparency in managing currency impacts.

Monitoring and adjustment

Regular review of hedging effectiveness allows companies to refine their strategies. Market conditions change, and what works today may not be optimal tomorrow. Continuous monitoring ensures that hedging strategies remain aligned with business objectives and market realities.

In Sarah's case at Float, she had accrued a negative balance of $892 and Wise fees of $300 for the last 6 pay cycles, resulting in a make good exchange rate bonus of $1,192 in her next paycheck ². This example demonstrates the importance of tracking and adjusting for currency impacts systematically.

Advanced strategies for complex operations

Options strategies

Currency options provide the right, but not the obligation, to exchange currencies at predetermined rates. This flexibility allows companies to benefit from favorable movements while protecting against adverse changes. Options can be structured in various ways to match specific risk profiles and business needs.

Corpay, a provider of comprehensive and fully integrated cross-border payments and currency risk management solutions, helps identify and manage currency exposures, allowing for the implementation of scalable strategies to meet specific goals ⁹. They deliver 145+ currencies to over 200 countries, including in-country payments in 117 countries and securely stored value in 35+ currencies ⁹.

Netting and pooling arrangements

For companies with multiple international subsidiaries, netting allows offsetting of payables and receivables in the same currency across different entities. This reduces the overall exposure and transaction costs. Pooling arrangements consolidate cash management across currencies and entities.

These sophisticated strategies require careful coordination but can significantly reduce currency risk and costs for complex international operations. They work particularly well for companies with balanced flows in multiple currencies.

Implementing technology-driven solutions

Real-time payment systems

According to research, 84 percent of global payments are now either direct payments or they have one intermediary ¹⁰. Additionally, 89 percent of the payments that flow through the Swift network arrive at the destination bank within an hour ¹⁰.

Half of the payments through the Swift network make it all the way to the beneficiary account in less than five minutes ¹⁰. These improvements in payment speed allow companies to manage currency exposure more precisely.

Automation benefits

Automation reduces manual errors and speeds up processing times. Currently, 7% of respondents leverage AI technologies for spend management, while 40% are considering implementation within the next year ⁵. This trend toward automation extends to currency management.

Payroll systems automate wage calculations, tax deductions, and compliance tasks, speeding up the payroll process and cutting errors by reducing manual admin ¹¹. Beyond automation, payroll systems improve financial visibility, support strategic planning, and scale easily ¹¹.

How Airwallex supports currency hedging strategies

Airwallex offers comprehensive solutions for businesses managing currency risk in strengthening home currency environments. The platform provides multi-currency accounts to receive funds, high-speed international transfers, multi-currency company and employee cards, expenses and reimbursement management, and automated accounts payable management ¹¹.

For businesses requiring more sophisticated solutions, Airwallex offers programmatic account creation and onboarding, multi-currency account management at scale, global multi-currency payment acceptance, interbank FX rates and currency management, and programmatic, cost-effective global payouts ¹². These capabilities enable businesses to implement comprehensive hedging strategies efficiently.

McLaren Racing and RYSE have both transformed their complex cross-border finances into streamlined, cost-saving, and efficient global operations with Airwallex ¹². These success stories demonstrate how modern financial technology can address the challenges of currency management effectively.

Conclusion

Managing currency risk when your home currency strengthens requires a multifaceted approach combining traditional hedging instruments, operational adjustments, and modern technology solutions. Success depends on understanding your specific exposure, implementing appropriate strategies, and continuously monitoring their effectiveness.

The examples from companies like Float, Stockford Limited, and McLaren Racing show that significant savings and risk reduction are achievable with the right approach. International transfers are expected to increase five percent per year until 2027 ¹⁰, making effective currency management increasingly important.

For businesses looking to implement comprehensive currency hedging strategies, Airwallex provides the tools and infrastructure needed to manage currency risk effectively. With features ranging from multi-currency accounts to automated payment processing and competitive exchange rates, Airwallex helps companies protect their margins while expanding globally. Explore how Airwallex can support your currency management needs and help your business thrive despite currency fluctuations.

FAQ

What are the main risks companies face when their home currency strengthens?

When a home currency strengthens, companies face reduced export competitiveness as their products become more expensive for foreign buyers. Additionally, overseas revenues lose value when converted back to the stronger home currency, potentially impacting profit margins and cash flow significantly.

How do forward contracts help hedge against currency strengthening?

Forward contracts allow companies to lock in exchange rates for future transactions, providing certainty about conversion rates regardless of currency fluctuations. This protects against the risk of a strengthening home currency reducing the value of foreign receivables or making exports less competitive.

What is natural hedging and how can companies implement it?

Natural hedging involves structuring business operations to naturally offset currency exposure without using financial instruments. Companies can implement this by matching foreign currency revenues with expenses in the same currency, or by diversifying operations across multiple countries to balance currency risks.

How do multi-currency accounts help with currency hedging strategies?

Multi-currency accounts allow companies to hold and manage funds in different currencies without immediate conversion, reducing exposure to unfavorable exchange rates. This enables businesses to time their currency conversions strategically and maintain operational flexibility across international markets.

What role does accounts payable automation play in currency risk management?

Accounts payable automation helps companies better manage currency exposure by providing real-time visibility into foreign currency obligations and enabling more strategic payment timing. Automated systems can track exchange rate fluctuations and optimize payment schedules to minimize currency conversion losses.

How can technology solutions improve currency hedging effectiveness?

Modern financial technology platforms provide real-time exchange rate monitoring, automated hedging triggers, and integrated multi-currency management. These solutions enable companies to respond quickly to currency movements, execute hedging strategies more efficiently, and maintain better control over their foreign exchange exposure.

Citations

1. https://www.moneymover.com/customer-stories/stockford-limited/

2. https://www.float.com/blog/how-we-manage-exchange-rate-fluctuations-as-a-remote-company

3. https://espanol.regions.com/información/comercial/artículo/fiff/cómo-protegerse-de-la-fluctuación-de-monedas-extranjeras

4. https://www.airwallex.com/ca/blog/what-is-a-multi-currency-account

5. https://www.concur.com/blog/article/2025-accounts-payable-automation-trends-report-key-takeaways

6. https://www.airwallex.com/ca/blog/accounts-payable-automation

7. https://www.splunk.com/en_us/customers/success-stories/mclaren-racing.html

8. https://abmagazine.accaglobal.com/global/articles/2023/oct/interviews/front-of-the-grid.html

9. https://cross-border.corpay.com/exclusive-autosport/

10. https://www.jpmorgan.com/payments/payments-unbound/volume-3/cross-border-payment-modernization

11. https://www.airwallex.com/ca/blog/what-is-a-payroll-system

12. https://www.airwallex.com/ca/blog/what-is-bin-sponsorship