NEW YORK (awp/afp) – The rapid rise of the dollar since the beginning of the year has been a double-edged sword for American multinationals which, to limit the fallout, can hedge or reposition their activities abroad.
For a company that imports, the surge in the greenback against the euro, the yen or the British pound is a boon since the products cost it less.
But for an American company that exports, products sold in dollars become more expensive, at the risk of losing customers. Not to mention the loss in value of income generated abroad when converted into dollars.
Several multinationals have already revised their forecasts for the year, like the computer giant Microsoft which warned that its quarterly turnover would be cut by 460 million dollars and its net profit by 250 million because of currency effects.
Adobe, Salesforce, Biogen, Pfizer all warned that the rapid rise of the dollar at the start of the year would have a greater impact on their accounts than expected.
40 billion
Companies that generate most of their revenue outside the United States are logically the most exposed, starting with tech giants, manufacturers of medical equipment and service companies, according to Kyriba, a management platform business liquidity.
Currency effects could affect the results of S&P 500 companies by a total of $40 billion in the first half, Kyriba predicts.
The sharp rise in interest rates decided by the American central bank to fight inflation, combined with the influx of investments in the United States from investors looking for safe bets in these uncertain times, boosted the dollar.
The greenback has gained 13% against the euro over the last twelve months, thus approaching parity with the single currency, or even 22% against the yen.
“In the short term, this is good news for the United States because it makes imports cheaper, and can therefore slow inflation,” notes Desmond Lachman, of the think tank American Enterprise Institute.
In the medium term, the effect on the American economy is more nuanced because if exports slump, “this increases the United States’ trade deficit, and therefore its external debt”.
But the multinationals “don’t really have control” over these elements, he notes.
On the other hand, they can attenuate the impact of fluctuations in the foreign currencies in which they establish their prices and their invoices, by adopting hedging instruments.
Most multinationals have such programs, which they change every quarter or even every month, sometimes by trying to predict the evolution of currencies, explains Bob Stark, of Kyriba.
It’s not an exact science, he admits. Especially in a time of great uncertainty about the direction of inflation, interest rates, the possibility of a recession etc.
Change country
But “since the start of the pandemic, CFOs have become much better at considering multiple scenarios and acting accordingly,” said Bob Stark. “If you can assess the impact of different scenarios on your cash flow forecast, then you can make better decisions.”
Nike, for example, warned on Monday that currency effects would squeeze its annual revenue by several percentage points. They should also affect its gross margin, but to a much lesser extent, due to “favorable coverage rates”.
The current high volatility of currencies also means that it is more expensive to hedge. Some companies choose not to protect themselves so as not to have to pay the premiums.
Among the other instruments at their disposal, multinationals can also reduce their exposure by adjusting their practices: by paying their Japanese suppliers in dollars for example, by renegotiating prices, or even by changing the country of supply.
They can also wait for a decline in the greenback before repatriating their profits to the United States.
“After the fact”, once the dollar has already risen, companies’ room for maneuver is limited, however, believes Nikolai Roussanov, professor of finance at the University of Pennsylvania. Especially when prices are also rising due to supply chain issues and energy costs.
“If you try to react to something that has already happened, it can come back to you because some of these movements are temporary,” he says.
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