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Managing USD, EUR, and EGP Exposure in a Cross-Currency Payroll Business

Article Quant Q&A · Author: K. Morris
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Summary

The document describes a US company that bills a German client in euros while funding payroll in Egyptian pounds. Its cash flows span USD, EUR, and EGP: funds are converted for payroll in Cairo, client invoices are paid in euros on net terms, and the bank routes the process through dollar conversions. The business is exposed to exchange-rate movements across the currencies over a multi-year payroll commitment.

The answer recommends retaining funds in USD until payment is needed and presents a bearish view of the Egyptian pound, citing economic and tourism-related concerns and inflation pressures. This is an opinionated currency outlook, not a structured hedge design: it gives no hedge ratios, instruments, scenario analysis, or quantified evidence. The suggested stance may not suit the company’s actual timing, margins, or risk tolerance, and its macroeconomic claims are tied to the period described rather than established as enduring forecasts.

Key ideas

  • The described business receives EUR revenue while incurring payroll costs in EGP and handling conversions through USD.
  • Currency exposure affects the margin between client billing and payroll costs.
  • The answer advocates holding USD until funds are needed and expresses a negative view on EGP.
  • The recommendation gives no hedge sizing, instrument selection, or quantified analysis.

Tags

ForexRisk managementPosition sizing
Full text
# Currency risk USD>EUR>EGP


# Currency risk USD>EUR>EGP












Seeking input on hedging risk on USD to Euro with a 3rd component of payroll issued in Egyptian Pounds. We are a US corp invoicing a Germany entity in Euro with massive payroll being paid in Egyptian pounds for the next 2 years plus. Our profit is tied to the margins between Pay and Bill rates. USD will be transferred and then converted in Cairo to issue payroll. Client will pay us in Euro. We will invoice in Euro. Our bank will tie everything back to conversion of USD to Euro to USD upon payment of invoices net 30.

## Answer by Fady Anwar (score 2)

https://quant.stackexchange.com/a/21726

If I were in your place I would always keep my funds in USD till the last moments, USD tends to be overvaluated in Egypt and since Egyptian economy is constantly deteriorating specially after the recent events regarding the russian plane crash and the mexican toursit shooting which could kill the tourism industry and its supporting ecosystem industries like real estate, catering and transportation this will eventually lead to the EGP having very bad exchange rates against USD and with the recent payments of Swiss canal bonds and their high rf rates this will also lead to the inflation of EGP. In short hedge on EGP it's not expected to rise any soon even by a miracle.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.