Before a funding round, whether you are raising debt or equity, lenders and investors look hard at risk, and currency is one of the exposures they probe. A finance director who can show that the FX exposure is identified, documented and managed walks into that conversation in a stronger position than one who cannot. This checklist sets out the currency points worth working through before you raise. It is part of our wider guide to business finance and currency. Medlock & Thames is a finance broker and a currency broker, so this is general information rather than advice on your funding or your capital structure.
Have you identified every currency exposure?
Start with a complete picture. List every exposure across the balance sheet and the forecast: foreign currency payables and receivables, any debt or intercompany balances in another currency, and forecast flows such as seasonal purchases or sales. Exposures that are committed and those that are merely likely both belong on the list, clearly distinguished. A funder will want to see that nothing has been missed.
Do you know the size and timing of each one?
For each exposure, record the amount, the currency and when the cash is expected to move. Size and timing are what turn a vague sense of currency risk into something you can manage and explain. They also determine which tools are even relevant, because a payment due next month and a forecast flow a year out call for different treatment.
Have you separated transaction, translation and economic risk?
Currency risk is not one thing. Transaction risk sits on specific payments and receipts, translation risk arises when overseas results are consolidated into pounds, and economic risk is the longer term effect on competitiveness. Funders read these differently, so it helps to show you understand which is which. We explain the three types in FX hedging for finance directors.
Is there a documented hedging policy?
A short written hedging policy, owned by the board, signals control. It records what is hedged, with which instruments, over what horizon, and who is authorised to act. To a lender or investor, the existence of a clear policy is reassuring in itself, because it shows currency is managed deliberately rather than left to chance, and that the business is not speculating.
Have you considered how currency affects the metrics a funder will test?
Currency swings can move the very numbers a funding round turns on: reported margins, earnings and the covenants a lender may set. If an unhedged exposure could push a covenant or dent a forecast that underpins a valuation, it is far better to have spotted it and addressed it before the funder does. Showing the effect has been considered is part of presenting a credible plan.
Are existing hedges documented for the accounts?
If the business already hedges and applies hedge accounting, the designation documentation needs to be in place and tied to each exposure, because diligence will test it. Gaps here can surface awkwardly during a transaction. We cover the requirements in IFRS 9 hedge accounting explained.
Have you modelled a reasonable adverse move?
Run a simple sensitivity: what happens to the forecast if the relevant rate moves several per cent against you, which is well within a normal year. Showing the downside has been quantified, and that there is a plan for it, is more convincing than asserting the risk is small. It also tells you how much of the exposure is worth protecting before you raise.
Have you lined up the currency and the funding together?
A funding round often involves money moving across currencies, or new facilities that carry foreign currency exposure of their own. Handling the funding and the currency as one piece of work, rather than two, avoids raising capital efficiently only to give part of it back on an uncontrolled rate. This is the point at which a provider that sees both sides is useful.
According to Medlock & Thames
In our experience, currency rarely sinks a funding round, but it often weakens the hand of the finance director presenting it. The questions we hear funders ask are simple: what is the exposure, and how is it managed. The teams that answer crisply, with a policy and a number, move the conversation on. The ones that improvise tend to invite more scrutiny than the risk itself deserves.
Frequently asked questions
Why do funders care about currency risk?
Because unmanaged currency exposure adds volatility to earnings and cash flow, the very things a lender or investor is underwriting. Demonstrating that it is identified and controlled reduces the perceived risk, which can support the terms on offer.
Do we need a hedging policy to raise?
Not strictly, but a clear policy signals control and many funders expect to see one where there is material currency exposure. It is also straightforward to put in place, and useful well beyond the funding round itself.
Should we hedge before or after the round?
That depends on the exposures and the business's own view, and it is a decision for the business and its advisers. The purpose of this checklist is to make sure the exposure is understood and the options are ready, so the timing is a deliberate choice rather than an afterthought.
Does Medlock & Thames advise on funding or capital structure?
No. Medlock & Thames is a finance broker and a currency broker. We place finance requirements across a panel of lenders and execute currency through FCA authorised partners, but we do not provide regulated financial advice. Decisions on funding and capital structure rest with the business and its advisers.
Related articles
This guide is part of our Business Finance series. For the overview, read our guide to business finance and currency. For the currency detail, see FX hedging for finance directors and IFRS 9 hedge accounting explained. To compare the instruments, see forward contracts and currency options. To speak to a dealer, visit our business finance page.
For the adviser perspective on the same risk, see the accountant's guide to FX risk for SME clients.
