EDC — Foreign Exchange Facility Guarantee
Canada
Free up collateral held against your foreign exchange contracts
grant_single_labels|summary
grant_single|eligibleFinancing
- grant_single|noCondition
grant_single|deadlines
- grant_single|openingDateNovember 14, 2019
grant_single|financingType
Other Support
grant_single|eligibleIndustries
- Manufacturing
grant_single|grantors
- Government of Canada
- Export Development Canada (EDC)
grant_single|status
grant_card_status|open
grant_single_labels|preview
You can manage FX risk by implementing a sound foreign exchange hedging strategy, which your financial institution or other FX provider can help you establish. A Foreign Exchange Facility Guarantee can replace their collateral requirement and free up your
grant_single_labels|projects
The Export Development Canada (EDC) Foreign Exchange Facility Guarantee is designed to mitigate foreign exchange risks for businesses. Eligible activities include developing foreign markets and ensuring price stability for international clients.
- Developing foreign markets
- Ensuring price stability for international clients
grant_single|admissibleProjectsExample
$55,000
Edmonton
Develop FX hedging strategy for a social economy enterprise
$25,000
Ottawa
Implement FX risk management for a nonprofit organization
$40,000
Halifax
Establish FX hedging for a community development organization
$30,000
Toronto
Implement sound foreign exchange hedging strategy for a tech startup
$70,000
Montreal
Mitigate foreign exchange risk for an import-export business
$50,000
Vancouver
Stabilize FX risk for an agricultural cooperative
grant_single_labels|admissibility
Eligibility for this grant is determined by evaluating the administrative, technical, and financial competencies of your business, your risk management strategy, and the terms of your institution's currency facility agreement.
- Administrative competencies of your business
- Technical competencies of your business
- Financial competencies of your business
- Review of your currency risk management strategy
- Terms of your institution’s foreign exchange facility agreement
grant_eligibility_criteria|who_can_apply
Eligible types of companies for the Garantie de facilité de change (Foreign Exchange Facility Guarantee) from Export Development Canada (EDC) can be determined by EDC based on certain administrative, technical, and financial competencies, as well as their foreign exchange risk management strategy and the terms of their financial institution's foreign exchange facility agreement.
- Companies with strong administrative, technical, and financial competencies
- Companies with a robust foreign exchange risk management strategy
- Companies whose financial institution’s foreign exchange facility agreement meets EDC’s terms
grant_eligibility_criteria|eligible_expenses
There are eligible expenses for this grant:
- Financial institution's collateral or margin requirement for foreign exchange derivative contracts
grant_eligibility_criteria|zone
The eligible geographic zones for this grant are all regions in Canada where the business operates. The eligibility is assessed based on the administrative, technical, and financial competencies of the company.
- All regions in Canada
grant_single_labels|criteria
There are evaluation and selection criteria for this grant. The eligibility for the grant is based on the managerial, technical, and financial capabilities of your company, review of your foreign exchange hedging strategy, and the terms of your financial institution's foreign exchange facility agreement.
- Managerial, technical, and financial capabilities of your company
- Review of foreign exchange hedging strategy
- Terms of financial institution's foreign exchange facility agreement
grant_single_labels|register
- Step 1: Determine eligibility
- Assess your company's administrative, technical, and financial competencies.
- Review your company's currency risk management strategy.
- Evaluate the terms of your financial institution's foreign exchange facility agreement.
- Step 2: Acquire the guide
- Submit your professional email to receive the guide on optimizing foreign exchange risk coverage strategies.
- Agree to receive EDC's electronic newsletters, trade information, and promotional messages.
- Step 3: Read the guide and understand content
- Comprehend the various instruments for foreign exchange coverage.
- Learn how to develop a strategic coverage plan to protect and grow your business.
- Step 4: Contact EDC for personalized support
- Reach out to EDC's contact number or email for further assistance in implementing a tailored strategy.
grant_single_labels|otherInfo
The "Garantie de facilité de change" offers Canadian businesses a strategic means to manage exchange rate risks effectively and ensures better cash flow predictability and possibly increased borrowing capacity.
- Helps avoid margin calls until the threshold is reached.
- Enables businesses to enter longer-term currency contracts (up to three years).
- Facilitates obtaining advanced currency hedging tools without tying up working capital.
- EDC assesses eligibility based on administrative, technical, and financial competencies, examination of the hedging strategy, and terms of the financial institution's facility agreement.
- Provides a fixed rate for pricing accuracy and better cash flow forecasts.
grant_single_labels|contact
example@edc.ca
1-800-229-0575
Apply to this program
Summary of the Foreign Exchange Facility Guarantee
The Foreign Exchange Facility Guarantee (FEFG) by EDC helps Canadian businesses manage exchange rate risks without tying up their working capital. This solution aims to protect profit margins, ensure stable pricing, and enhance borrowing capacity.
Detailed Explanation of the Foreign Exchange Facility Guarantee
In today's volatile global market, managing foreign exchange risk is more important than ever for Canadian exporters. The fluctuations in currency rates, disruptions in supply chains, and market instability have become commonplace, making a solid foreign exchange strategy essential. Export Development Canada (EDC) offers the Foreign Exchange Facility Guarantee (FEFG) to help businesses mitigate these risks efficiently.
Overview of the Foreign Exchange Facility Guarantee
The Foreign Exchange Facility Guarantee is a financial tool designed to help Canadian businesses hedge against foreign exchange risk without the need to immobilize their working capital. By guaranteeing exchange rates in advance, businesses can ensure more accurate pricing for their products and services. This guarantee enhances a company's ability to forecast cash flows and maintain profit margins despite currency fluctuations.
Benefits of the Foreign Exchange Facility Guarantee
Choosing the Foreign Exchange Facility Guarantee offers several advantages:
- Guaranteed Exchange Rates: Locking in exchange rates ahead of time allows for precise pricing and better financial forecasting.
- Sustained Profit Margins: By mitigating the impact of currency fluctuations, businesses can maintain their profit margins.
- Enhanced Borrowing Capacity: With guaranteed rates, businesses can obtain loans more easily, as lenders have increased confidence in their cash flow stability.
- Improved Cash Flow Management: Eliminating the need for margin calls (funds set aside to cover potential losses) up to a certain threshold ensures better liquidity management.
- Access to Advanced Tools: With EDC's support, businesses can utilize sophisticated hedging tools and manage risks more effectively.
How the Foreign Exchange Facility Guarantee Works
Eligibility for the Foreign Exchange Facility Guarantee is determined based on various criteria:
- Administrative, Technical, and Financial Capabilities: EDC assesses the company's overall capacity to manage foreign exchange risks effectively.
- Hedging Strategy Review: The company's current hedging plans are evaluated to ensure they align with best practices and the company's needs.
- Agreement Terms with Financial Institution: The terms of the institution’s foreign exchange facility agreement are reviewed to provide a customized fit.
The implementation involves the following steps:
- Step 1: Evaluation of the company’s needs and current strategies for managing foreign exchange risk.
- Step 2: Selection of appropriate hedging instruments, such as forward contracts or options, to mitigate risks.
- Step 3: Arrangement of guaranteed exchange rates by EDC to provide price stability.
- Step 4: Continuous monitoring and adjustments to hedging strategies as market conditions evolve.
Types of Foreign Exchange Hedging Solutions
Foreign exchange hedging can be divided into two main categories:
Natural Hedging
Natural hedging involves strategies that minimize currency risk through operational decisions. For example, a business that both sells products internationally and sources materials from the same foreign market can offset currency fluctuations. By setting up an affiliated company abroad or a local subsidiary, the company can align its revenues and expenses in the same currency.
Financial Hedging
Financial hedging involves the usage of financial instruments to protect against currency risks. These tools include:
- Forward Contracts: Agreements to buy or sell a specific amount of foreign currency at a predetermined rate at a future date.
- Options: Contracts that provide the right, but not the obligation, to exchange currency at a set rate before a specified date.
Each financial instrument carries inherent risks and costs, and the best solutions depend on an in-depth analysis with a foreign exchange service provider.
Costs and Considerations
While implementing a foreign exchange hedging strategy has costs, the benefits often outweigh them. Without hedging, a company might face unpredictable losses due to unfavorable currency movements. Costs typically involve:
- Premiums for Options: Payments for the right to exchange at a specific rate.
- Forward Contract Costs: Potential fees for locking in rates and differences between contracted rates and actual market rates.
Working closely with a foreign exchange service provider helps businesses to amortize these costs and adopt a proactive approach, ensuring long-term financial stability.
Real-World Applications
Acadian Seaplants Limited is a prime example of how the Foreign Exchange Facility Guarantee can be effectively utilized. According to Jean-Paul Deveau, President and CEO, the company uses the guarantee to stabilize prices for their clients and expand into new markets without the uncertainty of currency fluctuations. This stability allows them to plan and grow confidently.
Frequently Asked Questions
Let's address some common questions about the Foreign Exchange Facility Guarantee and foreign exchange risk management:
- What is Foreign Exchange Risk? Foreign exchange risk refers to the potential of financial loss due to fluctuating currency rates. For a Canadian company selling goods and services abroad, this means the value received in Canadian dollars can vary, impacting profitability.
- Why is Managing Foreign Exchange Risk Important? Proper management ensures predictable cash flows, preserved profit margins, and safeguarded revenues from currency volatility.
- What Does Effective Risk Management Involve? It involves implementing a strategic hedging plan tailored to the company’s needs, often with the help of a service provider.
- What are the Benefits of a Robust Foreign Exchange Strategy? Benefits include improved cash flow predictability, margin protection, enhanced sales prospects, and more accurate financial planning.
- How Much Does Hedging Cost? While costs vary based on instruments used, not hedging can lead to significant financial losses. Engaging a service provider can help balance costs and benefits.
Conclusion
The Foreign Exchange Facility Guarantee by EDC is an invaluable tool for Canadian businesses looking to navigate the complexities of the global market. It safeguards profit margins, ensures pricing stability, and enhances borrowing capacity, enabling companies to focus on growth rather than the unpredictability of currency movements. Consulting with a foreign exchange service provider and leveraging advanced hedging tools through this guarantee can position businesses for success in an ever-changing economic landscape.
