July 13, 2015

By Dr. Yossi Sheffi, LinkedIn Influencer

No one knows for sure how Greece’s financial crisis will impact the global economy over the long-haul. However, what companies can expect is instability in some form or other, such as volatile prices and fluctuating currency values within the Eurozone and beyond. 

Companies have developed financial hedging tools such as long-term, fixed-price contracts with suppliers denominated in their currency of choice. More sophisticated financial hedging includes put and call options, that allow a company to shield itself from large fluctuations in currencies or shifts in commodity prices and even profit from them. Other financial instrument separate the volatile and stable part of a quote. For example, transportation companies may quote a price plus a fuel surcharge that is tied to a government index of fuel price, thus taking the volatile component out of the negotiations. (Of course, this raises many other issues between suppliers and customers, such as the percentage of the commodity in the supplier’s offering, the difference between retail and wholesale prices, the timing of surcharges, and many others.)

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