Bank contracts: Hedging against currency rate fluctuations

Projects can be very large and spread over multiple years, especially in multinational companies. Those projects can run for 1 year to 3 years or even more. For these projects the business will usually procure a large amount of materials and services that costs thousands of dollars, and frequently such purchases are done in a foreign currency. If, as if often the case, the foreign currency exchange rates are not stable the business will hedge it’s currency risk by hedging its currency exposure with their bank, meaning they will pay a fee to ensure they can receive and pay foreign currency at a fixed rate for a certain period. when they hedge such currency exposure they can better predict the profitability of their projects for the given time period.

Usually, the hedging is done per project per currency. If the business starts another project, they will set up a new hedge contract with the bank for another period. Mostly when the contract is ended, the business will either arrange a new contract if the project runs longer or they will fall back to the "main" exchange rate in their ERP system, but often businesses make several contracts over the full length of a project, as this will enable them to adjust contract terms over time.

Use in Business central: currency exchange rate adjustments.

In Business Central such currency hedging contacts come into play when the user runs the report “Adjust Exchange Rates“ to adjust the vendor ledger entries and when applying payments to open invoices. In both cases currency gains/losses, either un-realized or realized, are registered in the system. If contracts are linked to the ledger entry being adjusted the currency exchange rate will be taken from the specific contract and not the ‘main’ exchange rate table