How much currency movement can your deal take?
If you buy in one currency and sell in another, the exchange rate can wipe out your margin without the price of the goods moving at all. Enter the amounts and the rate on the day you fix the prices: you will see the break-even rate, how far your currency can fall before you lose money, and the GP in each scenario.
Deal data
How it is calculated
The calculation isolates the exchange rate and keeps the rest of the deal constant. It is the same one explained step by step, with a container, in the blog article. the article on exchange-rate risk.
- 1
Write down the amounts and the rate on the day you fix the prices
The sale, the purchase with its costs and that day’s exchange rate, expressed as units of the other currency per one of yours (EUR/USD 1.10 means €1 is worth $1.10).
- 2
Work out the break-even rate
It is the rate at which the GP of the deal is zero.
Break-even rate = Foreign-currency cost ÷ (Sale − other costs in your currency) - 3
Measure how far your currency can move
Compare the break-even rate with the fixing rate. With no other costs, the result equals the margin on sales.
Tolerable fall = 1 − Break-even rate ÷ Fixing rate - 4
Decide what to do about the risk
If the margin does not cover the move you consider plausible over your term, there are four paths: natural hedge, forward, currency option, or raise the price and carry it.
Frequently asked questions
What does this calculator work out?+
The exchange rate at which your deal’s GP would be zero and how far your currency can move from the day you fix the prices until that point, plus the GP under different scenarios. It isolates the exchange rate: all other costs stay constant.
Where does the exchange rate come from?+
You type it. The calculator queries no real-time rate. If you do not have your bank’s, the ECB publishes a daily reference rate for about thirty currencies, but it does so for information purposes only and strongly discourages using it for transactions.
Why does the tolerable fall match my margin?+
When you sell in your currency, buy in another and have no other costs, the fall in your currency that takes GP to zero is exactly GP divided by sales, that is, your margin percentage. With other costs in your currency, the tolerance is GP divided by the sale minus those costs.
Does it work if I sell in another currency and pay my costs in mine?+
Yes: choose that option. The risk is the mirror image: you lose if your currency rises, and the tolerable rise is GP divided by your costs.
Is what I type stored?+
No. The whole calculation runs in your browser and, if you reload the page, the values go back to the sample ones.
Does Granel hedge exchange-rate risk?+
No: Granel does not arrange or manage hedges, forwards or options, and does not connect to your bank. What it does is keep each cost line of a deal in its own currency and consolidate P&L in your base currency at the ECB daily reference rate, and it lets you record the real amount that went through the bank so you can compare what was budgeted with what happened.
Measure the exchange rate on all your deals, not just one.
In Granel each cost line keeps its currency, its estimated amount and its real one, and P&L is consolidated in your base currency. Granel does not arrange hedges: deciding whether to hedge stays with your bank.