Charities Turn to Currency Hedging
People working in the nongovernment aid sector estimate that charities and other nonprofit groups trade at least $6 billion a year in foreign exchange to cut back on currency conversion costs as they raise money across the world and to provide a ready supply of foreign funds to relief projects. World Vision Inc. is one of the pioneers in this growing part of the global foreign exchange market, trading over $1 billion a year in 73 different currencies.
"The most critical thing is how to preserve the value of donations, and you've got to use the most effective tools available and stay on top of the game," said World Vision's global treasurer, Kathryn Powers.
That means adopting a wide range of strategies—including foreign-exchange hedging—to protect World Vision's cash pile during bouts of currency volatility and sharply rising inflation rates in many of the countries in which it operates.
The growing involvement in the global foreign-exchange markets of non-government organizations and nonprofit groups underscores the rising importance of the world's single biggest asset class—foreign exchange. Over the past five years, many of the largest aid groups have been honing their financial skills to adapt to a more volatile economic environment. World Vision is a member of the Association of Financial Professionals and its executives have been invited to speak at financial conferences and are now plugged into the SWIFT—or Society for Worldwide Interbank Financial Telecommunication—banking network to speed up its transaction times and save money.
"It's all about squeezing out the last dime," Ms. Powers said.
A Christian humanitarian group based in Washington state, World Vision's efforts to stay on top of the sudden shifts in the global foreign-exchange markets are aided in large part by the geographical spread of its donation base. Around a third of its $2.6 billion a year in donations come in U.S. dollars, but large amounts also come from Australia, South Korea and Europe, which helps stabilize the value of its cash holdings.
"We have a natural geographical hedge," said Ms. Powers, who, before joining World Vision, worked as a currency trader at AT&T Inc. and also once helped build medical clinics in Malawi.
In addition, in many of the countries where World Vision delivers aid, it tries to use funds raised in the same currency. In West Africa, for instance, many currencies are pegged to the euro, so the charity tries where possible to deploy funds raised in Europe to reduce foreign-exchange costs. U.S. dollars, meanwhile, are still widely used in many of the world's poorer economies, eliminating foreign-exchange conversion costs.
But when those natural hedges aren't enough, World Vision doesn't shy away from stepping into futures markets, Ms. Powers said.
"The whole point is being able to deliver to women and children in need, and that requires certainty," she said.
In the case of Japan, World Vision's strategy is to use local funds that haven't already been committed to forward contracts to finance its relief efforts there, which include developing special sites to help children overcome the psychological impact of the disaster. Then World Vision will begin to tap into its global presence–including its currency positions–to get the necessary funds in place quickly, Ms. Power said in an interview earlier this week.
During late Asian trading Wednesday, the yen was trading at 80.93 yen to the dollar–close to a record high–compared with 83.30 yen shortly after the earthquake struck on Friday.
It's relatively easy to hedge in the larger world currencies, such as euros, yen and even New Zealand dollars, Ms. Powers said. The larger emerging markets such as South Africa also present relatively few problems.
But when World Vision looks into other countries such as Malawi and Zambia, it has to get a little bit more creative. "We have to examine the type and tenure of whatever instruments are available," Ms. Powers said, adding that often the best available option is to take forward positions on various commodities "but we're very careful when we do that."
Inflation also figures into World Vision's thinking. The charity regularly examines data from the International Monetary Fund and when a country's inflation rate rises 3% or more for three successive years then warning flags are raised. "Then we have a close look and see if there's something we need to do," such as buying up advance stocks of food or medical supplies, Ms. Powers said.
Share This
Subscribe Here
0 komentar:
Post a Comment
-Best Regards-