Currency risk is not one risk. It is three.
Most companies treat currency risk as a single line item. It splits into three exposures, and the one that never appears in the ledger is settled in the operating model rather than in the treasury.
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A Swiss supplier signs a three-year framework agreement denominated in euros. On the day of signature the margin is comfortable. Two years later the same euro price converts into fewer francs, wages and rent have not moved, and the contract that won the business barely covers its cost. Nothing was mismanaged or mispriced at the time.
That sequence is filed under “currency risk”, as though it were a single item. It is three. Transaction, translation and economic exposure run on different horizons, appear in different documents and answer to different people. Only one is a treasury problem, and it is the shortest-dated.
On the Swiss National Bank’s monthly series, one euro averaged CHF 0.9254 in July 2026 and one US dollar CHF 0.8100; the SNB policy rate has stood at 0% since 20 June 2025. On 18 June 2026 the Federal Government Expert Group on Business Cycles cut its forecast for Swiss goods exports to −0.7% for 2026, from +1.0% three months earlier.
The three exposures differ in horizon, in visibility and in who can act on them
- Transaction exposure is the gain or loss on commitments already contracted — invoices issued, order books, supplier agreements — between the moment a price is agreed and the moment the money moves. Short-dated, quantified to the centime, owned by finance.
- Translation exposure arises at consolidation, when the balance sheet and results of a foreign subsidiary are converted into the reporting currency. It changes reported figures without, in itself, moving cash. Owned by the board and the auditor.
- Economic exposure is the effect of a lasting shift in relative prices on future cash flows: tenders lost on price, quotations never submitted, market share ceded to a competitor whose cost base sits in the customer’s currency. It appears in no ledger, and belongs to whoever decides where the company buys, produces and prices.
Only transaction exposure can be bought off in the market
A forward contract fixes today the rate at which a dated future cash flow will be converted. It does not produce a better rate; it produces a known one, surrendering the favourable side of the move along with the unfavourable. That is the whole of the product, and enough, provided the underlying cash flow is real and dated.
In Switzerland the regulatory weight is lighter than finance teams often assume. Under the Financial Market Infrastructure Act, currency forwards and swaps settled on a payment-versus-payment basis are exempt from the risk-mitigation duties applying to uncleared OTC derivatives (Article 107); hedges directly associated with a company’s own business activity do not count towards the threshold defining a small non-financial counterparty (Article 98); and where the other side is a financial counterparty — in practice the bank — it files the trade report (Article 104). The binding constraint is not compliance but the quality of the exposure schedule: which amounts, in which currency, on which dates. A cover placed against a forecast that proves wrong is a position, not a hedge.
Translation exposure moves the accounts, and Swiss law decides which currency they are kept in
Article 958d paragraph 3 of the Code of Obligations provides that financial reports are presented in the national currency or in the currency required for business operations; where the national currency is not used, the values must also be shown in Swiss francs and the exchange rates applied disclosed in the notes. Article 621 paragraph 2 goes further: share capital may itself be denominated in that foreign currency, in which case the accounts must be kept and the reports filed in it, among the currencies the Federal Council permits.
The reporting currency is therefore a governance decision, not an administrative default: a group whose revenue, costs and financing are mostly in euros reduces its reported volatility by reporting in euros, without altering a single cash flow. What no accounting choice alters is the number of francs available to pay Swiss wages. Translation exposure reaches cash only indirectly, through covenants, ratios and distributable reserves measured on the reported figures.
Economic exposure is answered in the operating model, not in the treasury
Economic exposure cannot be hedged away: it has neither a defined amount nor a settlement date. It is reduced by moving the currency composition of costs towards that of revenue — where inputs are bought, where work is performed, how the customer is invoiced.
Swiss evidence supports the mechanism. In the Swiss Journal of Economics and Statistics, Dario Fauceglia, Anirudh Shingal and Martin Wermelinger examined disaggregated quarterly Swiss trade data for 2004–2011 and found full exchange-rate pass-through into imported input prices in a majority of sectors, while those cost changes were overwhelmingly not passed to foreign customers in export prices. Cheaper imported inputs therefore offset part of the margin compression caused by an appreciating franc — the effect called natural hedging. The symmetry matters: because those cost changes are not passed on, a depreciating franc raises input costs that also stay inside the margin. Natural hedging reduces volatility rather than conferring an advantage.
Invoicing currency is the cheapest instrument in the set, and more negotiable than it is negotiated. Eurostat figures extracted in April 2026 show that in 2025 the euro accounted for 51% of extra-EU goods exports and the dollar for 33%, while on the import side the dollar accounted for 51% and the euro for 40%.
The 2026 setting gives the distinction a price
The SNB set a minimum exchange rate of CHF 1.20 per euro on 6 September 2011 and discontinued it on 15 January 2015. At the July 2026 average a euro converts into roughly 23% fewer francs than at that floor. Covering CHF 1 million of Swiss costs required about EUR 833,000 of revenue at 1.20 and requires about EUR 1,081,000 at 0.9254 — some 30% more euro turnover for the same franc obligation, accumulated since 2015 across several contract cycles.
At its assessment of 18 June 2026 the SNB left the policy rate at 0% and stated that, if necessary, it has “an increased willingness to intervene in the foreign exchange market”, countering “a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland”. The scope is precise: the mandate is price stability and the concern is rapid, excessive movement — not the level an exporter needs to win a tender.
The Expert Group’s June forecast fills in the environment: GDP growing 0.9% in 2026 and 1.6% in 2027, goods exports falling 0.7% this year before recovering 3.5% next, consumer prices rising 0.6% in both years, and a technical assumption of a real exchange rate index up 1.2% in 2026 and down 0.3% in 2027 — an assumption, not a forecast of any bilateral rate. Should any of the risks it lists materialise, it notes, “further upward pressure on the Swiss franc would be expected”. Swiss exports nonetheless reached a record CHF 287.0 billion in 2025, on the customs office’s annual figures.
What a management team can decide, and the dates that will test it
None of the following requires a view on where the franc is going, and none is offered here.
- Split the exposure before measuring it. One schedule of contracted cash flows by currency and settlement month; one statement of foreign-currency net assets at consolidation; one estimate of the revenue competing against costs in another currency.
- Fix the hedging policy before the rate moves. Decide what share of contracted exposure is covered and over what horizon, write it down, apply it mechanically. A rule set in advance is risk management; a decision taken after a large move is a market view.
- Put the exposure into the contract. Multi-year agreements can specify the currency of invoice, a review threshold expressed as a percentage movement, and an indexation clause — terms negotiated once that outlast any hedge.
- Move costs towards revenue where the operating model allows. Sourcing in the customer’s currency is the cheapest natural hedge; relocating production is the most expensive and the most durable.
Two markers carry information before year end: the Expert Group’s next forecast, scheduled for 17 September 2026 — its June edition assumes US import tariffs stay broadly at current levels — and the SNB’s following quarterly assessment. Neither will show the third exposure. That one appears in the tenders a company stops being invited to.