Key question
What is the optimal currency mix of debt to minimise translation risk on equity — without paying too much in interest rate differentials?
Enter your company data
Assets and liabilities by currency, EUR m
| EUR m | EUR | USD | GBP | CHF | RUB | demo | Total |
|---|---|---|---|---|---|---|---|
| Assets | demo | demo | demo | demo | demo | demo | |
| of which cash | demo | demo | demo | demo | demo | demo | |
| Debt | demo | demo | demo | demo | demo | demo | |
| Other liabilities | demo | demo | demo | demo | demo | demo | |
| Total liabilities | demo | demo | demo | demo | demo | demo | |
| Equity | demo | demo | demo | demo | demo | demo |
Hedging priority
The currency composition of debt can be structured to reduce balance sheet volatility at minimal servicing cost. It makes sense to start with currencies that are most volatile yet cheapest to service — such debt reduces risk the most for the least cost. In this case that is CHF (negative carry — cheaper than EUR), then GBP and USD, and only lastly RUB — high volatility but also the highest servicing premium. This is exactly what moving along the efficient frontier from S9 to S1 in the table below reflects.
Efficient frontier: equity risk vs. servicing cost
At the current currency composition of debt the company bears equity translation risk of EUR 13.7m at a 5% probability over one year. Without changing the total debt volume — by changing only its currency mix — this risk can be reduced by nearly EUR 3m. Alternatively, at the same risk level, EUR 1.3m per year can be saved in hedging cost.
Current equity risk
EUR 13.7 / 3.3m
5th percentile / annual debt cost
Potential risk reduction
− EUR 2.9m
at the same debt cost
Potential annual saving
− EUR 1.3m
at the same risk level
Demo is based on historical data. In the full version — current data, your currency, your company's portfolio.