A major challenge hedge fund managers face when working with clients is that people believe they can predict what the currency forecast would be, which is difficult owing to the unpredictability of exchange rates, Standard Bank Foreign Exchange and Money Market sales manager Eric Freemantle said at a talk about managing foreign exchange and trade finance, hosted by Barloworld, on Thursday.
He added that few companies had a set hedging policy, which was very important for any business dealing with currency.
“Looking at what you hedge comes down to a view that feeds back into a business’ hedging policy. From any view, you must follow your policy outwards. You can always change your policy but it’s good to have it in writing so you are protected,” Freemantle noted.
He advised businesses to make money off their sales and not from trying to guess where the rand was going.
He further highlighted the difficulties being faced by various economies in Africa, noting that Nigeria, Angola, Mozambique and Ghana, in particular, had been negatively impacted by the fall in the oil price.
“Nigeria gets 90% of its foreign exchange from oil. It does, however, have other exports but they don’t earn as much,” he said.
Freemantle noted that Nigeria had decided to keep its rates stable and that Standard Bank was expecting a devaluation of the naira along with Angola’s kwanza and Botswana’s pula.
“If you are sitting with money in those countries when they devalue, it’s going to cost you money,” he warned.