Publications and Subscriptions Exchange Rates: Who's Following What Strategy in 2018?

Exchange Rates: Who's Following What Strategy in 2018?

Currency hedging and planning security are two factors that preoccupy Swiss SMEs. Despite good economic prospects, the risk of currency fluctuations will always be there. Our publication looks at what strategies a company can follow.

How do Swiss SMEs manage to focus on their core business despite currency risks? Credit Suisse surveyed over 300 Swiss corporate clients about their expectations for the Swiss economy and exchange rates in 2018. Thanks to marked growth in key destination countries and reduced political risk in Europe, Swiss SMEs expect there to be less currency turbulence than in the previous year. According to the study, most companies think the Swiss economy will grow at least as fast this year as it did in 2017 – even if their assessment is not quite as optimistic as that of many economists or financial analysts.

Small companies in Switzerland are exposed to greater currency risks than firms in virtually any other country. That's because the majority of SMEs surveyed are closely intertwined with foreign markets: 70% operate primarily as exporters or importers, while only 30% – usually in the service sector – operate exclusively within Switzerland. But experience shows that even the latter are not totally immune from currency fluctuations. Currency developments therefore have a major bearing on the business performance of Swiss SMEs. One indication of the degree of dependence is the number of purchase and sale contracts drawn up in foreign currencies. Even so, nearly one-third of the SMEs surveyed do not undertake any currency hedging at all and therefore take the risk onto their own books. Meanwhile, a quarter hedge their foreign-exchange risk completely, while 44% do so to some extent.

But how do the SMEs hedge themselves in specific terms? And what strategies do they have with regard to foreign-currency risks? For this study, four SME representatives from various sectors and regions were asked about their experiences: sunglass exporter Swiss Eyewear Group AG, travel operator Ernst Marti AG, software developer Abacus Research AG, and IT product importer Linard Distribution SA. Although the companies interviewed vary greatly, all have one thing in common: Their aim is to reduce uncertainty and increase planning security.