Free FX Exposure Profiler

Currency exposure is what is left after inflows and outflows in the same currency cancel each other, held across the period before the money actually moves. That framing decides the response. A business billing in euros and paying suppliers in euros can widen the natural hedge until the two sides roughly match, which costs nothing and needs no counterparty. A forward contract does something different: it fixes the rate and creates an obligation to deliver the currency on the date, which is protection if the flow happens and a position of its own if the customer cancels.

The scoring here is deliberately crude, and it helps to know how crude. A net position is divided by 10,000 and multiplied by a weight held in the code, where the euro carries 4, sterling 5, the yen 6 and the rupee 7, with the result capped at 100. So 400,000 of euro revenue against 250,000 of euro costs is a net 150,000 and a score of 60, while the same 150,000 net in rupees reaches the cap. Those weights are ordinal placeholders with no source attached, and the hedging cost line is a flat 1% of gross exposure.

The loss usually arrives between the quote and the invoice. A price of 100,000 euros quoted when the pair sits at 1.08 is 108,000 dollars in the model that won the deal. Sixty days later the work is delivered, the invoice goes out, the pair is at 1.03, and 103,000 dollars arrives. Nothing operational went wrong, no one made a mistake, and 5,000 dollars of margin is gone. The three answers are to quote in your own currency and push the risk to the buyer, to price a buffer and lose deals to whoever does not, or to hedge the receivable once it exists.