currency risk (FX exposure)
Also called: FX exposure, currency risk, exchange-rate risk, FX risk
How much results change when exchange rates move, for example when costs are billed in dollars and revenue arrives in hryvnias.
Currency risk (FX exposure) is how much a company's results move when exchange rates move. It appears whenever revenue and costs sit in different currencies: a product sold for hryvnias whose servers, video or AI are billed in dollars, or a team paid in hryvnias that sells to customers in euros.
To see the exposure, list the cash flows by currency. Costs in a foreign currency make the company lose when the hryvnia weakens; revenue in a foreign currency makes it gain. Where both exist, they partly offset each other (a natural hedge), so what matters is the net position per currency, not either side alone. Size it with a simple sensitivity: what does a 10% move in each rate do to the year's profit and to a project's NPV?
In reporting, keep currency apart from the team's own drivers. When the hryvnia weakens, euro sales grow in hryvnias without anyone selling more, and a dollar bill grows without anyone spending more; mixing that into price or cost variances rewards or blames people for the weather. Decisions about hedging (matching currencies, pricing in the cost currency, fixed-rate contracts) come after the exposure is measured.
Example
Klasna earns mostly hryvnias, sells to EU families in euros and pays for video and AI in dollars. In September the plan assumed EUR at 45 and USD at 42; actual rates were 47 and 43.50.
- EU sales of 12,180 EUR brought 12,180 × 2 × 0.975 = +23,751 UAH more contribution.
- The video bill for 5,890 lessons at 0.75 USD cost 5,890 × 0.75 × 1.50 = −6,626.25 UAH more.
- Net currency effect: +17,124.75 UAH, nobody's merit.
For the year, the dollar 10% stronger (42 to 46.20) costs 80,128 × 0.75 × 4.20 = 252,403.20 UAH of profit. The exposure can also run the other way: in the build-or-buy case, building its own video classroom removes a dollar bill, so a 10% weaker hryvnia raises the build's NPV from 290,526.21 to 680,935.63.
Common mistakes
- Looking at one side only. Revenue and costs in foreign currencies partly offset; measure the net position.
- Hiding currency inside price or cost variances. Show it as its own line.
- Planning at today's rate without a range. Test at least ±10% on each rate that matters.
- Forgetting it in project cases. A build-or-buy or a new market changes which currencies the company is exposed to.
- Hedging before measuring. First know the size and direction of the exposure, then decide what to fix.