Commodity market volatility, slowing growth in China, low oil prices, foreign central bank policies, the potential exit from the European Union by the UK – all of these factors can affect the strength of currencies.
With an economy that is heavily based on energy and natural resources exports, Canadian companies are particularly vulnerable to foreign exchange volatility.
The toll that low oil prices have taken on Alberta and the value of the Canadian dollar underscore just how exposed Canadian businesses are to exchange rate fluctuations.
“If the supercycle of strong oil prices and a strong Canadian dollar are truly over, then an economic shift will follow,” the CFERF survey warns. “What are Canadian business leaders doing to adapt to this new environment from a foreign exchange perspective?”
The answer, for about one-quarter, is “nothing."
When surveyed, 66% of Canadian CFOs and other senior financial executives agreed that having a foreign exchange risk management strategy is important. And yet the survey found that one-quarter have no strategy in place and a third have no plans to implement one.
Canadian companies continue to be largely in reaction mode, said Karl Schamotta, director of foreign exchange research at Cambridge Global Payments, which commissioned the survey.
“What we were finding is that it’s still a very reactive environment,” Schamotta told Business in Vancouver. “The average Canadian business is really seeing an exchange rate moving and then they’re trying to prevent the damage. You’re trying to get fire insurance after the house is on fire.”
Schamotta said the world’s largest companies have a written plan that covers all potential scenarios with respect to currency and commodity volatility. It helps them make long-term decisions that leaves them less exposed.
He said some companies are more vulnerable to foreign exchange volatility than others.
“The more foreign exposure that a company has the more vulnerable they are and those with very tight margins are also highly vulnerable.”
