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Charities lose US$23.5m on foreign exchange

[LONDON] Top global charities lost US$23.5 million on foreign exchange last year, hit by problems with hedging their international income or by an inability to do so with often obscure currencies of poor or war-torn nations A report on Tuesday by AFEX, one of the biggest non-bank providers of global payment systems and currency advice to small and medium-sized companies, drew on data from the annual reports of 10 major charities and pressure groups.

It found Greenpeace and Medecins Sans Frontieres suffered most, losing 8.9 million euros and 7.9 million euros, respectively, on currency issues in the financial year to April 2014.

While charities, like companies, have benefited from the rise of cheaper non-bank currency providers in the past decade, managers say they struggle to avoid costs that others tackle by hedging known currency risks ahead of time.

Hedging involves offsetting the risk of holding one currency while having liabilities due later in another, often with forward or other futures contracts.

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But while a US company can plan to hedge a future purchase of German bulldozers because it knows when it will pay, there is far less certainty in, say, how much charities will receive in dollar donations or the spread of Ebola in west Africa.

Greenpeace had a contract to buy the euro at a fixed rate which led to a 3.8 million euro (US$4.71 million) loss. "The losses are a result of a serious error of judgment by an employee in our International Finance Unit acting beyond the limits of their authority and without following proper procedures," a Greenpeace statement said.

MSF's international financial coordinator Ricardo Rubio and Oxfam's finance director, Bob Humphreys, both say Greenpeace's experience is an aberration for a sector that would like to hedge more but is unable to.

"We're operating as Oxfam in 90 plus countries, many of which have currencies for which there are no known currency hedging instruments," Mr Humphreys said.

"FX providers are always happy to work on Kenyan shillings or whatever but when it comes to, say, Nepalese rupees there's not a lot you can do."

Oxfam lost 1.9 million pounds on exchange rate differences last year. Mr Humphreys said the charity makes FX losses and gains of between zero and 2 million pounds annually, out of an annual budget of more than 300 million.

Mr Rubio says MSF works hard to match donations and spending internally, removing most of the need for hedging, and that 2 million of MSF's 7.9 million loss relates to the internal consolidation of results for its 35 international entities.

Its overall per centage exchange rate loss of 0.6 per cent is not far off the 0.5 per cent for Oxfam.

Like Oxfam, MSF has seen profits from exchange rates in previous years.

Results of the other seven charities in the survey ran from gains of just under half a million for Christian Aid to a loss of 671,000 pounds for Water Aid. "As we report in euros, we are very sensitive to euro fluctuations," says Mr Rubio. "When there is a strong euro, we have more exchange rate losses, and when there is a weak euro, like this year, we should have more gains." REUTERS