How much of your risk is just the exchange rate?
Revenue in one currency, costs in another, and a rate nobody controls in between. Simulate all three, then freeze the rate and rerun: the spread that disappears is what hedging can actually remove.
Finance Starter Monte Carlo Pro engine
After you install, this is the model to open.
What Does the Exchange Rate Do to Profit?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
Twenty thousand simulated years:
- Profit, mean
- $319K
- Profit, P5 / P95
- $80K / $569K
- Margin swing
- 3% to 20%
Freeze the rate at 1.07 and rerun: the spread that vanishes is the hedgeable part of your risk, priced in dollars, which is the number to hold against the cost of a forward contract. The same three lines fit any currency mismatch: suppliers, customers, payroll.
The model
EUR 2.4M of revenue (triangular), USD costs around 2.25M (PERT), and the EURUSD rate drawn uniform between 1.02 and 1.12, because a year out a band is the honest forecast.
| EUR revenue | triangular 2.15-2.4-2.7M |
| EURUSD rate | uniform 1.02-1.12 |
| USD costs | PERT 2.15-2.25-2.45M |
| USD profit and margin | simulated |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Does growth or margin move your profit more?How Do Growth and Margin Move EBITDA Together?
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- Which thirty invoices should you actually check?Pull a Fair Sample of Invoices to Check
- Which forecast should you actually quote?What Will Next Quarter's Fees Be?
- Is that client really slower or just one late invoice?Do These Two Clients Pay at the Same Speed?
- Is the plan limited by money or by people?Split a Fixed Budget Across Three Things
Every model like this one, and the method behind them: Monte Carlo simulation.