Answers / FP&A

How do you handle FX in forecasting?

A core FP&A interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

First separate the exposures: transactional (revenues/costs in foreign currency that hit cash) versus translational (consolidating foreign subsidiaries). Then set a rate convention and apply it consistently: budget rates locked at planning for the plan, actuals at the period's average/spot, and forward or updated rates for the rolling forecast. Crucially, distinguish FX-driven movements from underlying performance — report constant-currency growth alongside reported, so a currency swing isn't mistaken for operational gain/loss (and vice versa). Model sensitivity to ±5–10% moves on the key pairs, and flag where FX threatens covenants or targets. Coordinate with treasury on hedge rates already locked (use the hedged rate where exposures are hedged). The goal is forecasts that show the real business trend, with FX transparently identified rather than buried.

WHAT INTERVIEWERS LISTEN FOR

  • ✓Separate transactional vs translational exposure
  • ✓Consistent rate convention: budget locked, actuals at average/spot, forecast at forward
  • ✓Report constant-currency vs reported to isolate FX from performance
  • ✓Sensitivity to ±5–10%; use hedged rates where locked; coordinate treasury

COMMON MISTAKES

  • ✗Mixing FX moves with underlying performance
  • ✗Inconsistent rate conventions across plan/actual/forecast
  • ✗Ignoring hedged rates / covenant FX sensitivity

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