Once-in-a-Generation Opportunities in Currency Exchange for Yeshivas and Nonprofits 

Earlier this month, a once-in-a-generation moment occurred: the Euro and the US dollar reached parity. The last time the two currencies were of equal value was in 2002, 20 years ago.  Additionally, over the last 12 months, the Israeli shekel has dropped by 9% and has fallen from its 20-year high. See a pattern yet?

Until recently, the likelihood of such a happening was small. But in the last few months, as global supply chains remain stressed, inflation roars out of its 1970s and 1980s slumber, and food and fuel prices skyrocket in part thanks to the ongoing war in Ukraine, currency markets have been anything but stable. Currency market volatility is all over the news: in Europe, Israel, and many countries worldwide.

What Does Currency Volatility Mean for Yeshivas and Nonprofits?

Foreign exchange volatility is an ongoing challenge for yeshivas and nonprofits organized for purposes other than generating a profit. 

Why?

Because while a charity might fundraise in US dollars, their overhead, or the cost or expense in the general upkeep of running their business, if it is in Israel, for example, might be in shekels. If you are fundraising in dollars, you don’t know what that translates into in shekels until you transfer funds from one currency to another or vice versa.

Case Study: Layered Hedging 101

Hedging is a financial tool that helps mitigate the monetary extremes caused by market fluctuations. It allows the individual or organization to lock in an exchange rate at historically very high levels and secures that for three, six, nine, or 12 months. And once complete, the organization knows that the donations that come in for the next 3-12 months to the amounts they have hedged have been locked in, and they will be getting top shekel for those dollars.

The most basic way to hedge is what is known as a layered hedging strategy. A layered hedging strategy is similar to an insurance policy. Imagine living in a flood-prone area. You can’t prevent the flood (i.e., natural volatility), but you can pay a monthly fee to ensure against it. If the flood never comes, the homeowner loses because there is no payout. But by the same token, their “loss” is a “budgeable”  manageable expense.  

Now, in returning to the shekel, the analogous risk is that if the shekel continues to depreciate or the dollar continues to appreciate, what ends up happening is you have lost out on potentially taking advantage of more advantageous market movement. The upside is if you are able to pick the top of the market, which is very difficult, then you’ve got the top dollar. Layered hedging locks in a price point somewhere between those extremes.

Another advantage of layered hedging is that you don’t have to lock in a rate all at once; hedging can be done in tranches. Likewise, hedging is generally helpful when it comes to invoicing and budgeting. When an invoice is due, say 30 days out, a fixed currency exchange ensures you don’t end up paying more than what was billed in the original currency when adjusted for an exchange rate change. Remember, too, that yeshivas and nonprofits have limited funding resources.

Once a fundraising event is over, it is over. 

To highlight the details above, Worldesk recently worked with a yeshiva to lock in their shekel rate at 3.5, a historically high level. By determining their annual need ($12 million budget), we designed a layered hedging strategy that hedged their currency structure on a sliding scale (80% in the first quarter, 60% in the second, and so on) to take advantage of market movements, but also not hedging the entire budget completely.

Worldesk Wizardry Creates Currency Market Opportunities

At  Worldesk , a leading fintech solution for currency management and automation, we successfully helped businesses of all kinds navigate a volatile international marketplace. With full transparency and all the tools at your disposal, Worldesk is a trusted provider of software that helps companies manage and automate their international transactions.

Offered as a desktop or mobile software, Worldesk allows users to lock in a rate or set up real- time alerts in the system. Hence, exchange rates become advantageous, a user can lock in a favorable rate, and the transfer of currency is seamless.  

While currency experts on the Worldesk team can still perform the vital function of dispensing timely advice and creating an intelligent plan for managing your currency exposure, the key difference is time and speed. With Worldesk, users set their hedging parameters, and the software does the rest. In other words, a  “set it and forget it” approach to currency management. 

How Can Worldesk Assists Today’s Yeshiva Community?

For today’s yeshivas and nonprofits, struggling to raise money in an uncertain economy, combined with critical staffing and resource shortages, getting the most bang for the proverbial buck — or savings for every shekel — is more critical than ever. Because while Euro and USD parity might be an incredible once-in-a-generation experience, for now, market volatility could become the new normal in the decades ahead. 

Consider that a prognostication you can take to the bank. Contact the team at Worldesk via phone at 212-884-9912 or email at [email protected].