Skip navigation
Export Development Canada (E D C)
  • Français
  • MyEDC Account

    • Manage MyEDC Profile
    • MyEDC dashboard
    Log out of MyEDC

    Log in or sign up for…

    • Knowledge and advisory (MyEDC)
    • Credit Insurance
    • Portfolio Credit Insurance
    • Invoices and statements
    • Select Credit Insurance
    • Other EDC accounts
    • Trade Partnership Insurance
    • Financial Institutions Risk Manager
    • Service providers
  • Contact us
You’ve reached the 32-word limit.
  • About exporting

    Seize new opportunities to grow your customer base, increase revenue and generate more profits.

    Welcome to EDC

    • Getting started
    • Diversify to new markets

    Trade expertise for

    • Cleantech
    • Black entrepreneurs
    • Indigenous Business
    • Women in trade
  • Our solutions

    Manage the risks of doing business abroad and access the working capital and financing you need to grow your business.

    Managing Risks

    • EDC Trade Impact Program
    • Credit Insurance
    • Select Credit Insurance
    • Portfolio Credit Insurance
    • Performance Security Insurance

    Securing Financing

    • Investments
    • Investment Matching Program
    • Inclusive Trade Investments Program
    • Direct Lending
    • Buyer Financing
    • Structured and Project Finance

    Growing Working Capital

    • Working Capital Guarantees
    • Export Guarantee Program
    • Account Performance Security Guarantee
    • Foreign Exchange Facility Guarantee
    • Trade Expansion Lending Program
    • Surety Bonds

    Knowledge & Advisory

    • MyEDC
    • Get Export Help & Trade Advice
    • Search International Companies
    • Find Qualified Service Providers
    • Learn with EDC | FITT Lite Learning Series
    • Connect to Global Opportunities
  • Country and economic info

    Research international markets and get expert insights into the trends driving global trade.

    Search by Country or Market

    • Search all countries and markets
    • Indo-Pacific market intelligence
    • Europe market intelligence
    • U.S. market intelligence

    Expert analysis and insights

    • EDC Economics: Connecting Canada to the world
    • Global Economic Outlook
  • TradeInsights

    Explore our collection of learning resources designed to help you succeed in international markets.

    Browse Insights

    • Advice and insights
    • Webinars and events
    • Podcasts
    • Subscribe to receive EDC resources straight to your inbox

    Trending topics

    • Diversify markets
    • Manage tariffs
  • About us

    Learn about Export Development Canada (EDC), a Crown corporation dedicated to helping Canadian companies of all sizes succeed on the world stage.

    About our company

    • Corporate information
    • Management and governance
    • Transparency and Disclosure
    • Corporate reports
    • Newsroom
    • File a complaint

    Environmental, Social and Governance

    • ESG at EDC
    • Environment
    • Social
    • ESG Governance

    Working with us

    • Careers
    • Student programs
    • Procurement
  • Log in

    • Manage MyEDC Profile
    • MyEDC dashboard
    • Log out of MyEDC

    Log in or sign up for…

    • Knowledge and advisory (MyEDC)

    Credit Insurance

    • Portfolio Credit Insurance
    • Invoices and statements
    • Select Credit Insurance

    Other EDC accounts

    • Trade Partnership Insurance
    • Financial Institutions Risk Manager
    • Service providers
  • Français
A smiling businesswoman wearing glasses working on a laptop at a desk in a modern office.
  1. TradeInsights
  2. Article

How to manage FX risk before it impacts your profits

October 09, 2025 Manage Risk

Author Details

Emiliano Introcaso, CITP

Advisor & senior product operations manager

In this article:

  • What’s foreign exchange risk?
  • How to protect your business from FX risk
  • Debunking common myths about FX risk and hedging
  • Start protecting your business today

Exporting comes with many challenges, including late payments and shipping delays. But one exporting hazard is often overlooked: Foreign exchange (FX) risk. Here’s how to manage it and protect your profits from currency swings.

What’s foreign exchange risk?

FX risk, or currency exchange risk, occurs when shifts in currency values affect your costs or profits. If you quote prices, or pay expenses in a foreign currency, you’re vulnerable to this risk.

These risks affect both exporters and importers, as rising foreign currency rates can increase expenses and shrink profit margins. Global trade uncertainties such as changing tariffs or trade agreements can also cause unpredictable currency fluctuations, making it even more important to proactively manage FX risk.

Digital currency exchange board displaying current rates for multiple international currencies including USD, GBP, EUR, NZD, JPY and HKD.

Key takeaways about managing FX risk effectively

  • FX risk begins the moment you quote a price in a foreign currency.
  • Waiting to hedge can expose you to market swings that shrink your margins.
  • Hedging early helps protect your profits and cash flow.
  • Export Development Canada’s Foreign Exchange Guarantee (EDC FXG) lets you hedge without tying up your working capital.

Explore FX risk strategies in our webinar Buck stops here: Protect your profits from currency risk.

When does FX risk begin?

Many exporters think FX risk starts when they invoice or receive payment. In reality, it can begin as soon as you quote a price in a foreign currency. You may not receive payment for your goods for weeks or months after making the quote and shipping the product. During that time, exchange rates can change and affect your profits.

Amesika Baeta, regional director at Export Development Canada (EDC), says exporters should think about FX risk even more broadly: “I’d argue that risk begins from the moment you start your business.”

That’s why it’s important to treat FX risk as a strategic consideration from the beginning, not just during quoting or financial operations. Whether you’re sourcing materials, negotiating contracts, or planning market entry, FX risk should be part of your business planning. 

What’s FX hedging?

FX hedging is a way to protect your business from currency fluctuations. Exporters typically manage FX risk using one of two main strategies:

  1. Natural hedging: This means structuring your business, so you earn and spend money in the same foreign currency. For example, you set up a local office in another country, sell products in that market’s currency and also buy supplies there to reduce exposure to exchange rate changes.
  2. Financial hedging: This involves buying FX hedging tools through an FX provider. This can include a forward contract, which is an agreement to buy or sell an asset at a specific price on a future date.

Why do some exporters wait to hedge?

Despite the benefits of hedging, many exporters wait until a deal is signed, or goods are shipped, before thinking about hedging. But by then, the exchange rate may have moved against you. Baeta says, “Hedging late means you’re reacting to risk instead of managing it proactively.”

There are several reasons exporters delay hedging, including:

Limited access to cash or credit

Some exporters hesitate to hedge because traditional FX options can limit access to the cash and credit needed to run a business.

Hoping the exchange rate moves in their favour

Andrew Verlaan, EDC’s regional director for Ontario, says this approach is speculation, not a business strategy.

“Forget this ‘casino’ approach and stay focused on your customers, your products and growing your company,” Verlaan says. “Speculation means betting on currency movements, while hedging is about protecting your business from them,” he explains. “You should export based on market opportunity—not the hope of a weaker dollar. This ensures your profits come from selling your goods and services—not from currency swings.”

No FX strategy in place

Baeta says companies don’t plan for FX risk. “Many companies simply assume it’s a cost of doing business,” she says. “But companies that are strategic, a bit more mature and sophisticated will put a proper strategy in place to make sure they’re not leaving any money on the table.”

Real-world example: Risk of waiting to hedge

  • January: You quote a price of €100,000 to a European buyer.
  • March: The buyer accepts and you ship the goods.
  • April: You get paid, but the exchange rate has shifted.
  • Result: You receive $6,000 less than expected due to currency changes.

Without a foreign exchange hedge in place, you’re exposed to market volatility that’s beyond your control.

How to protect your business from FX risk

Proactively managing FX risk reduces uncertainty and helps improve financial forecasting. Here are three steps you can take to protect your business:

  1. Lock in exchange rates early: By securing rates upfront, you get clarity and control over your budget and can protect your profits from unexpected market swings. This also helps you create accurate financial forecasts and set realistic pricing.
  2. Hedge based on sales projections: Verlaan says it’s a good idea to hedge based on your sales forecast. “For example, if you expect U.S. sales of between $10 million and $13 million this year, you could lock in exchange rates for the lower amount now to protect your margins from the start,” he says. “If sales exceed expectations, you can adjust your hedge accordingly.”

Avoid tying up cash or credit: Many traditional FX hedging options require your company to post collateral—money set aside as a guarantee—which is usually taken from your line of credit. For example, your financial institution may require you to set aside up to 15% of the hedging amount as a guarantee, reducing the cash available for your daily operations. 

How EDC helps you manage FX risk without straining your cash flow

EDC’s Foreign Exchange Guarantee (FXG) is designed for Canadian exporters who want to manage currency exchange risk without limiting cash flow, especially when navigating today’s uncertain global markets. FXG provides:

  • Flexibility: EDC provides up to 100% coverage on your FX contract, so your financial institution won’t need to draw from your operating line and you’ll have full access to your working capital. 
  • Options: While an FXG is issued through a Canadian financial institution, it can support FX contracts arranged with FX brokers. This gives you more choices for competitive exchange rates.
  • Stability: By locking in exchange rates with confidence, you can protect your margins and focus on growing your business.

Find out how other Canadian exporters used EDC’s FXG to manage risk and expand into new markets.

Debunking common myths about FX risk and hedging

Even with tools like EDC FXG, some exporters hesitate to hedge because they don’t fully understand FX risks or strategies. Here are a few misconceptions:

“I don’t need to hedge since my customers pay in Canadian dollars.” 

Even if your customers pay in Canadian dollars, you may still face FX risk if you source materials, components, or services in foreign currencies. Currency fluctuations could increase costs and cut into your profits. A comprehensive hedging strategy considers your cost and revenue structures—not just how you get paid.

“I only export occasionally, so FX risk isn’t a big concern.”

Even infrequent exports can be affected by currency swings. A single transaction exposed to FX volatility can impact your margins or cash flow. Hedging tools, like forward contracts, can help protect your business by locking in the rate in advance. They’re flexible and can be used as needed.

“FX risk only matters for long-term contracts.”

Currency fluctuations can impact even short-term deals. A few weeks between quoting and payment is enough time for exchange rates to shift. Hedging early—even for short contracts—helps protect your margins and mitigate risk.

“I’ll just adjust my prices if the exchange rate changes.”

It’s not always easy to change your prices. Contracts, customer expectations and competition often limit what you can charge. Hedging gives you predictability, so you don’t have to rely on reactive pricing strategies that could hurt your market position.

“FX risk is only a problem in unstable markets.”

Even stable currencies, like the U.S. dollar, can fluctuate due to interest rate changes, elections, or global events. Familiar markets aren’t immune to volatility and assuming they are can expose you to risk.

“FX risk management is too complicated for small businesses.”

FX risk affects businesses of all sizes. Many small- and medium-sized enterprises (SMEs) assume hedging tools are only for large companies, but many solutions are designed to be scalable and accessible. Consulting with experts to tailor a strategy to your business is beneficial, no matter its size.

Start protecting your business today

FX risk can affect your profits if you don’t plan for it. Acting now gives you more control over your finances and helps you avoid surprises.

Learn how EDC’s FXG can help protect your margins and keep your business agile.

You should also check out

 A Black businessman contemplating in the office, looking out the window with a silver laptop on his lap.
October 06, 2025
Foreign Exchange Facility Guarantee

EDC’s Foreign Exchange Facility Guarantee (FXG) can cover your collateral requirements on foreign exchange (FX) contracts, helping you manage fluctuating currency rates without tying up your cash.

     

Related topics

   

Written by

Emiliano Introcaso headshot, EDC

Emiliano Introcaso, CITP

Advisor & senior product operations manager

Emiliano Introcaso, CITP - LinkedIn

Receive, via email, EDC’s TradeInsights e-newsletter, trade information and other promotional messages to make smarter export decisions.

By submitting this form, I consent to receive EDC’s e-newsletters, trade information and promotional messages, and can withdraw consent at any time.

Sorry, our system is temporarily unavailable. Please try again later.

Thank you for reaching out to EDC.

Please watch your inbox for our email.

                                               

Recommended articles for you

  • Webinar
    Three business professionals walking and conversing while walking along a modern building.

    Buck stops here: Protect your profits from currency risk

    Learn how to protect your profits from the impacts of currency risk and fluctuating exchange rates

  • Article
    October 03, 2025
    A firefighter in Cache Creek, B.C., sets a backfire to combat a raging forest blaze.

    How wildfires disrupt Canada’s economy: Trade & infrastructure impacts

    Explore how wildfires disrupt Canadian trade, tourism, infrastructure and economic productivity.

  • Article
    September 16, 2025
    A woman seated on a step stool packing orders into cardboard boxes in an inventory room.

    U.S. suspends de minimis rule: What Canadian exporters need to know

    The U.S. has suspended the de minimis rule. Learn how this impacts Canadian exporters.

Date modified: 2025-10-09

I consent to receive regular trade insights, as well as information about EDC solutions and events. I can withdraw my consent at any time by unsubscribing to any such message.

Sorry, our system is temporarily unavailable. Please try again later.

Thanks for subscribing

You’ll get our latest trade intelligence right to your inbox.

For partners and investors

  • Investors
  • Canadian financial institutions
  • Insurance brokers

Communities

  • Our alliances
  • Newsroom

Have questions?

  • Contact us
Government of Canada EDC Homepage
Export Development Canada
  • Privacy and Cookie use
  • Legal
  • Accessibility