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Strategic Finance

Doing Nothing Is a Strategy Too
— and It’s the Most Expensive One

Author Myforexeye Research
Nov 29, 2025 5 min read
As someone who has navigated the foreign exchange (FX) market for over 2.5 decades, we’ve seen firsthand how businesses manage or mismanage their currency exposures. And let us tell you, the most common and often most expensive "strategy" isn't a strategy at all: it's doing nothing. In the dynamic world of FX, inaction is still a decision, and it comes with real, tangible financial consequences.
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Margin Loss

Bank overcharges and spot conversions lead to higher costs and cash flow unpredictability.

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Missed Opportunities

Delaying hedging exposes exporters and importers to unfavorable market rates.

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Inefficient Financing

Missing out on foreign currency loans which offer lower rates and natural hedges.

The Hidden Costs of Passivity: Why "Hoping for the Best" Fails

Many importers and exporters fall into the trap of passive FX management. This often means relying solely on their banks for conversions or simply accepting spot rates when transactions occur. But what does this cost you? A lot, as it turns out.

Margin Loss and Unpredictability

When you passively rely on your bank, you're often paying more than you should. Banks typically overcharge on FX rates, sometimes by as much as 2-3 paise, even when clients are trying to be vigilant. This might sound small, but it adds up quickly, especially with large transaction volumes. Imagine converting $1 million; even a 0.25% fee can be significant.

Furthermore, relying on spot conversions means you're at the mercy of market fluctuations. You lose predictability in your cash flows because the rate you get today might be vastly different from what you budgeted for, directly impacting your profitability.

The High Price of Missed Opportunities

Hedging is about securing a future exchange rate today. When you "do nothing," you miss crucial opportunities to lock in favorable rates. This is especially true for:

Scenario A Exporters

The Risk: Delaying hedging can mean lower returns and lost forward premiums if the foreign currency weakens.

If you expect foreign currency payments, a weaker foreign currency means you receive less local currency.

Scenario B Importers

The Risk: Missing hedging windows results in higher costs. Waiting for a "better rate" gambles with profits.

For importers, a strengthening foreign currency means you pay more local currency to acquire the funds needed.

Think of it like this: if you have a target exchange rate that protects your profit margin, waiting around for that rate to miraculously appear or just letting the market decide is a gamble. And in business, gambles with your bottom line are rarely a good idea.

The Cost of Inefficient Financing

Your choice of financing for international trade also plays a huge role. Many businesses might stick to traditional INR loans without exploring foreign currency options. For instance, an exporter with USD receivables might benefit from a foreign currency-denominated loan due to potentially lower interest rates and a natural hedge against currency risk.

Financial Instruments Often Overlooked:

  • 1. External Commercial Borrowings (ECB)
  • 2. Foreign Currency Non-Resident (FCNR)
  • 3. Foreign Currency Swaps
  • 4. PCFC (Packing Credit in Foreign Currency)
  • 5. WCDL (Working Capital Demand Loan)

By not actively comparing options, you could be paying significantly higher borrowing costs. The "all-in cost" (interest rate, fees, and hedging costs) is what truly matters, not just the headline interest rate.

The Power of Proactive FX Management

We've witnessed numerous companies transform their financial health by moving from a reactive to a proactive FX strategy. Companies that adopt structured FX strategies consistently outperform their peers in similar markets.

1
Structured Hedging Policies They implement clear risk management policies. Instead of guessing, they use benchmarks like the First Day Forward Rate (FDFR) to evaluate their hedging decisions objectively. This shifts the focus from hoping for a better rate to comparing potential hedge rates against a realistic initial expectation.
2
Dynamic Decision-Making They don't make a static choice for financing or hedging. They dynamically assess market conditions, interest rates, and currency volatility to choose the most cost-effective options between, for example, PCFC and PCINR.
3
Leveraging Technology and Expertise Successful companies use integrated Management Information Systems (MIS) to gain real-time visibility into their FX exposures. They convert non-fund based limits into fund-based limits and leverage arbitrage opportunities to generate significant profits.

Stop "Doing Nothing" and Start Acting

The message is simple: in the world of foreign exchange, "doing nothing" is a strategy, but it’s the most expensive one you can choose. It leaves your business vulnerable to market volatility, eats into your profit margins, and limits your growth potential.

It's time to move from passive reaction to active planning. Embrace structured FX strategies, leverage technology, and seek expert guidance. By proactively managing your FX exposure, you can protect your profits, enhance your liquidity, and gain a significant competitive edge in the global marketplace.

Frequently Asked Questions

Working capital management is essentially managing the day-to-day money a business uses for its operations. It's the difference between what you own (like cash, money owed to you, and inventory) and what you owe short-term (like bills to suppliers and short-term debts). Good management means you have enough cash to run your business smoothly and take advantage of growth opportunities.

When you do nothing, you're essentially letting the market decide your exchange rates. This can lead to:

  • Higher costs: Banks might give you less favourable rates.
  • Unpredictable profits: If the currency moves against you, your planned profits can shrink.
  • Missed opportunities: You lose chances to lock in good rates when the market is favourable.

Hedging windows are periods when you can lock in a favourable exchange rate for a future transaction using tools like forward contracts. They're important because currency rates are always moving. If you wait, you might miss the chance to secure a rate that protects your profit margin or minimizes your costs.

Key steps include:

  • Understand your exposure: Know exactly how much foreign currency you're dealing with.
  • Set benchmarks: Use tools like the First Day Forward Rate (FDFR).
  • Explore financing options: Compare different loan types for the cheapest "all-in cost".
  • Use technology: Use platforms like Myforexeye for real-time rates.

The First Day Forward Rate (FDFR) is a way to set a benchmark for your hedging. It's calculated by taking the spot rate (current rate) on the day you get an order and adding the forward premium. This gives you an objective target rate to aim for when you're hedging, helping you evaluate if your hedging decisions are truly beneficial.