Foreign Exchange Risk: An Agenda item for your year-end Finance Committee meeting

As the academic year draws to a close, the May finance committee meeting provides a natural point for international schools to step back and review their longer-term financial position.

Alongside the discussions on transitions and next year’s budget, this is typically when boards revisit the school’s multi-year financial model, test key assumptions, and ensure that forward-looking plans remain robust. Within that process, it is also an appropriate moment to examine the school’s currency flows for the coming year, across fee income, payroll, and supplier commitments, and to confirm that any necessary foreign exchange management or hedging strategies have been properly considered and implemented.

Over the past 12 to 15 months, the US dollar has weakened materially against many of the world’s major and regional currencies, reshaping the financial landscape for international schools. In 2025 alone, the dollar index fell by close to 10%, with the currency declining by more than 13% against the euro and weakening against several Asian currencies, including the Singapore dollar. For some schools, this has eased cost pressures; for others, it has had the opposite effect. The more important point, however, is not whether a particular currency is strengthening or weakening, but whether schools clearly understand the currency exposures embedded in their fee structures, payroll, and supplier contracts. Rather than attempting to benefit from market movements, schools should be focusing on identifying where they are exposed and putting in place appropriate strategies to manage and hedge those risks in a deliberate and structured way.

Fee Income Currency Exposure: Fee income exposure arises where a school commits to an exchange rate between currencies, most commonly by offering a fixed local currency equivalent to a fee denominated in a reference currency such as USD. In doing so, the school is effectively setting the rate at which it is willing to exchange local currency for its target foreign currency income. From that point, any movement in exchange rates between when fees are set and when funds are received will affect the real value of income.

If the local currency weakens relative to the reference currency, the school will receive less in foreign currency terms than originally intended. If it strengthens, the school benefits. In either case, the exchange rate risk sits with the school, as it has fixed the rate for parents.

This exposure can be largely removed where the school requires fees to be paid strictly in the reference currency, without offering a fixed local currency alternative. In this case, the school receives the intended amount of foreign currency, and any exchange rate risk associated with converting from local currency is borne by the parent instead.

Payroll and Benefits Currency Exposure: Staff costs, including salaries and benefits, are typically the largest and most operationally complex source of foreign exchange exposure. These costs are often split across currencies, with expatriate staff receiving compensation partly in a hard currency and partly in local currency. The degree of flexibility allowed to staff in adjusting these proportions can add further complexity to forecasting and managing currency requirements.

Where payroll and benefits must be paid, either fully or partly, in a different currency from income, the actual cost of staffing will vary depending on the exchange rates applied at the time of payment. Some schools reduce this variability by purchasing foreign currency in advance, often supported by receiving fee income upfront, while others convert funds on a rolling basis and may choose to hedge these conversions. The key requirement is clarity over the timing, currency, and scale of these obligations.

Supplier and Contractual Currency Exposure: A significant portion of academic materials and services is procured from international suppliers and priced in foreign currencies. While some operational supplies are sourced locally, core items such as textbooks are often ordered well in advance, typically several months before delivery and payment.

This creates a time gap between the initial purchasing decision and the final cash outflow, during which the school is effectively exposed to exchange rate movements. Managing this exposure requires early visibility of purchasing commitments and alignment of any currency management decisions with the procurement timeline. Although these costs may represent a smaller share of the budget, they can still be material where currencies differ.

Capital Expenditure Currency Exposure: Capital expenditure introduces exposure where funds accumulated over time are held in a different currency from the one in which projects are delivered. Construction costs are typically denominated in the host country’s currency, while reserves may be held in a more stable international currency.

If these do not align, the real value of reserves can change before funds are deployed, affecting the school’s ability to deliver planned projects. Schools should, where possible, align the currency of reserves with expected expenditure, or otherwise plan how to manage the risk. Additional exposure arises where borrowing is undertaken in a foreign currency, as debt servicing will then fluctuate with exchange rates.

Balance Sheet and Reserves Currency Exposure: Beyond capital reserves, schools may hold emergency reserves or endowments in currencies different from their functional currency. These reserves are often measured against targets linked to operating expenditure, such as a number of months of costs.

Where reserves and operating costs are in different currencies, both the value of reserves and the benchmark they are measured against can move. This can affect how financial strength and resilience are assessed, even where underlying cash positions have not changed. Clarity over how reserves are defined and measured is therefore essential.

Assessing Foreign Exchange Exposure: Foreign exchange exposure is not simply a question of which currencies are used, but when cash is committed, received, converted, and spent. Schools should map their cash flows by currency over time, showing inflows, outflows, and points of conversion. This makes visible where currency is held, where it is exchanged, and where exposure remains.

The next step is to decide where certainty is required. Some schools may choose to fix expenditure exchange rates to rates used on income received, while others manage exposure more gradually by hedging planned expenditure. The objective is not to eliminate risk entirely, but to ensure that these decisions are deliberate and aligned to known cash flow patterns.