By Stephen McPhie, CA
Partner, RSD Solutions Inc.
Even though I lived in the USA for several years, I still do not understand U.S. politics and politicians. I don’t think most Americans do either. They just seem to be born either Democrat or Republican and harbour a life-long hatred of the other that borders on vindictiveness at times. Like many non-Americans, I just observe with amazement and never cease to be astonished about what goes on. However for better or worse, what goes on in America profoundly affects not only Americans, but also the rest of the world.
Now that we know that the U.S. president wasn’t born on Mars (subject to forensic examination of documentation), will U.S. politicians turn their attention to making a serious attack on the deficit? And what about the debt mountain?
Inflation fears are causing pressure for interest rate rises in a number of countries. It does not appear that the Fed is yet ready to raise rates but things can change rapidly.
The U.S. dollar has been weak while commodity prices have been rising. However some commentators are now opining that such process have overshot and are predicting falling commodity prices.
What will happen to the Euro if the PIG bale outs become PIGS bale outs? Or even PIGSI bale outs? (Portugal, Ireland, Greece, Spain and Italy.)
And so on and so on …..
The bottom line is that we are facing a very uncertain situation of possible currency volatility. Does your company have a thorough understanding of its foreign currency exposures in terms of identification, quantification and sensitivity to exchange rate fluctuations? Do you have well-developed strategies and policies for dealing with these? Are your hedges really effective and are you sure that they do not create additional exposures you are unaware of?
And if you answered yes to these questions, are you absolutely certain? Are you sure that a yes 12 months ago is still a yes today?
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