2021 year-end wellness check: Financial risk

Example: Company ABC has supplied a large client in Canada for the last decade. The Canadian business represents 22% of ABC’s total annual revenue. The trade between the two parties was settled in USD, with no FX conversions to execute. Over the last 10 years, the Canadian dollar weakened 24% against the USD, while strengthening +12% against the Australian dollar. While Company ABC had a superior product, it lost the Canadian client to a competitor in Australia who benefited from the 36% increase in competitiveness provided by the change in exchange rates. A CIBC risk analysis can identify and quantify your foreign exchange exposure, and recommend the most important steps toward creating an effective risk management strategy.

Example: A company that sells copper mugs used to make Moscow mules thinks it has no risk from record-high metal prices because the company plans to simply pass along any price increases to its retail customers. But there comes a point when a major price increase cannot simply pass along to consumers, especially when a major move happens quickly. Consumers may decide the item isn’t worth the cost or margins may become significantly compressed. Then that strategy results in a major loss of business. The company needs to quantify what can happen if copper prices continue their record run and customers are not willing to absorb the additional cost.