What it means
Every major currency has a three-letter code set by an international standard, and CHF is the one for the Swiss franc. The first two letters point to the country, which uses the Latin name Confoederatio Helvetica, and the last letter stands for franc.
The currency is issued and managed by the Swiss National Bank, the country's central bank. It sets monetary policy, which means it influences interest rates and the money supply, and it can also intervene in currency markets when the franc moves in a way it considers harmful.
The Swiss franc has a reputation as a safe haven, which is a currency or asset that investors prefer when global markets are uncertain. In turbulent periods money often flows into the franc, which can push its value up and make Swiss exports more expensive for foreign buyers.
For a business, exposure to CHF creates foreign exchange risk. If you invoice in francs but report in dollars, a change in the exchange rate changes the dollar value of what you receive or owe, even though the contract price has not moved.
Companies manage this risk in several ways. They may price contracts in their own currency, match francs coming in against francs going out, or use hedging tools such as forward contracts, which fix an exchange rate for a future date.
Accounting also matters. Under common reporting rules, balances in a foreign currency are translated at the exchange rate on the reporting date, and the differences are recorded as gains or losses, so a move in the franc can affect reported profit.
In practice
Real-world examples.
Example
A US furniture retailer buys specialist hardware from a Swiss manufacturer and is invoiced in francs. The finance team uses a forward contract to lock in the exchange rate for the payment date. The cost in dollars is known when the order is placed, which makes budgeting simpler.
Example
A Swiss pharmaceutical firm reports its results in francs but sells much of its product in dollars and euros. When the franc strengthens, its foreign sales are worth fewer francs. The finance director explains this effect in the earnings call as a currency translation impact.
Example
A global fund manager holds a portfolio of bonds and adds a small amount of Swiss franc assets as a cushion against market stress. In a sell-off the franc rises while other assets fall, which softens the portfolio loss. The manager reviews the position regularly because the franc can also fall back quickly.
Formula
Calculation
Dollar value = Amount in CHF x Exchange rate (dollars per 1 CHF)
Suppose a US importer owes a Swiss supplier CHF 80,000 and the assumed rate at the time of the order is $1.10 per CHF, so the cost is 80,000 x 1.10 = $88,000. If the franc strengthens to $1.15 by the payment date, the cost becomes 80,000 x 1.15 = $92,000, which is $4,000 higher. If the franc weakens to $1.05, the cost becomes 80,000 x 1.05 = $84,000, which is $4,000 lower. The rates here are assumed for illustration only, and real rates change continuously.Case study
Seen in the real world.
Alpine Gear Imports is an illustrative, fictional company that sells Swiss-made outdoor equipment to customers in North America. It bought stock in francs every quarter, but priced its catalogue in dollars once a year.
During one period the franc strengthened steadily, and the company's gross margin shrank by several percentage points without any change in sales. The finance manager traced the problem to the unhedged franc purchases, which had grown more expensive each quarter.
The company then agreed a policy to hedge about two thirds of expected franc purchases for the next twelve months using forward contracts, and to review catalogue prices twice a year. The illustrative lesson is that a stable-looking supplier price can hide a currency risk that moves the real cost of goods.
Watch out
Common mistakes.
- Assuming a safe haven currency never loses value, when the franc can and does fall as well as rise.
- Quoting a Swiss supplier's price without stating the currency and the date used for conversion, which leads to disputes at payment time.
- Ignoring currency exposure in forecasts and budgets, so a move in the exchange rate appears as an unexpected variance.
Questions
People also ask.
What does CHF stand for?
It is the international code for the Swiss franc, with the letters drawn from the country's Latin name, Confoederatio Helvetica, and the word franc.
Why is the Swiss franc called a safe haven?
Investors tend to buy it in times of uncertainty because Switzerland has a long record of political and economic stability, though this is a pattern and not a guarantee.
How can a business reduce CHF exchange rate risk?
It can invoice in its own currency, match income and costs in francs, or use hedging tools such as forward contracts and options.
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