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#INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
ROOM NUMBER
July 28th, 2015 - 4:30-5:30
Currency Exchange Issues and
Rate Fluctuations -
Smart Management, Tips and Practices
203AB

2. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
Session Panelists
•Leonard Williams - Moderator
•Rick Estridge
•Byard Bridge

3. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
Background and Framing
Who Bears / How is
the risk / reward
allocated across the
Donor/Funder,
Implementer and
Subgrantee?
Often driven by
culture and capacity
of transaction
participants
Ability / Practicality of
Hedging
Should be addressed
very early on in the
award process and
documented in the
agreement / contract
Threshold
Issues Funding delivered to
field or HQ / Recovery
of IDC
Sophistication /
Maturity / Particulars of
local banking system
and currency
regulation
Funding provided by
Donor/Funder in
tranches
Capacity of local staff
Practical
Particulars

4. Rick Estridge
1

5. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
Key Currency Risks in for Grants
• Translation Risks: Restatement of foreign currency
held assets and liabilities into base currency.
• Transaction Risks: The change in buying power you
will be able to achieve (actual exchange rate different
than budget assumptions.

6. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
Key Currency Risks in for Grants
• Malawi Kwacha (MKW) was pegged to the USD at 165 MKW.
• Malawi dropped its currency peg to the US dollar in April 2012, causing the
Kwacha to devalue by about 50 percent.
• CRS had a MTZ program through FFP/USAID where food commodities
were sold to local buyer and Kwacha received.
• CRS/Malawi sold its monetization wheat at the beginning of the 1st quarter of
FY2012 for 436,467,656 MKW ($2.65 million)- enough to fund its entire
FY12 monetization budget and some FY2013 activities. CRS has a mixture
of locked USD obligations/expenses and others in LC.
• Currency laws require CRS/Malawi to retain the currency in MKW in a local
account – cash could not be exported.

7. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
Case Study #1: The Tale of Malawi MTZ
USD Purchasing Power: $2.65 Million to $1.62 Million

8. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
The Malawi Kwacha Challenge
• How to legally and responsibly manage and mitigate the impact on
purchasing power and beneficiaries when:
• Malawi law would not allow export of currency or converting into USD?
• Subrecipient Agreements for US-based subs were denominated in
USD?
• Economist projecting that the Kwacha may further devalue and inflation
of 20% impacting most LC expenses?
• Overview of action taken by CRS and lessons learned.

9. Byard Bridge
2

10. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
Case #1
Headquarters
$1,000,000 to Nigeria
Local office receives
Naira (NGN)

11. #INGO15
2015 Annual Conference | Pathways To Excellence
July 28-30, 2015 | Washington, DC
Analysis
• No rate comparison for the conversion
• Best rate?
• Captive client
• Additional Fees

12. #INGO15
2015 Annual Conference | Pathways To Excellence
July 28-30, 2015 | Washington, DC
Case #2
• Organization to pay service provider in Brazil
• Expenses total 2,000,000 BRL
• Organization sends USD to local office
account
• Market rate fluctuates
• Bank converts USD to BRL at current rate
• Converted amount does not cover expenses

13. #INGO15
2015 Annual Conference | Pathways To Excellence
July 28-30, 2015 | Washington, DC
Analysis
• Accounting transparency
• Must wait for rate to be reported by the
overseas entity
• True costs are not known up front
• Full amount of local currency may not be
received
• HQ send more funds potentially resulting in
more fees and further “approximation” risk.
(Multiple rates quoted)

14. #INGO15
2015 Annual Conference | Pathways To Excellence
July 28-30, 2015 | Washington, DC
Case #3
Headquarters
Monthly
$500,000
India Local
Office
Locally converts
part to INR
Holds balance in
USD

15. #INGO15
2015 Annual Conference | Pathways To Excellence
July 28-30, 2015 | Washington, DC
Analysis
• Volatility of markets
• Value lost on funds
• Country risk
• Credit risk
• Centralization of funding at HQ can
mitigate risks

16. Leonard Williams
3

17. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
The Three Way - Issues
Donor provides funding directly to country office in £ for use in local
currency – TZS - by subgrantees and local staff. Will need to be
reported in USD. Project runs over three years with tranches released
based on attainment of certain objectives / deliverables / results.
Issues –
• Recovery of IDC
• Liquidation of subgrants
• Reporting of results to the donor
and other stakeholders
• Timing of receipts

18. #INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
The Three Way - Analysis
Negotiate currency
conversion rate or terms
for dealing with losses /
gains upfront with donor
Consider deconstructing
transaction to use
natural hedging
Recovery of IDC
• Use offsets
• Fall back on pre- negotiated
rate
Liquidation of subgrants
• Push risk onto subgrantee
• Be prepared to revise
expectations regarding results
Reporting of results to
donors and other
stakeholders
• Use pre-negotiated rate
• Have explanation ready if
impact is material
Timing of receipts
• Press for tighter performance
• Consider hedging

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#INGO15 | 2015 Annual Conference | Pathways To Excellence | July 28-30, 2015 | Washington, DC
Q&A