Was Philipp Hildebrand frank about the Swiss Franc?

Currency plays a key role in the world economy and can affect the profits of organisations, particularly larger companies with a worldwide reputation. Currency can affect companies in different ways, either in a favourable or an adverse manner. The three main types of exposure that can affect a currency are:

• Transaction exposure – A company receives income or makes payments in a different currency to what they use within their own home country. The risk is that the domestic currency can be lower than expected or the cash payments made may be higher.


• Translation exposure – Companies report their financial position of foreign subsidiaries back to the currency of their parent company; affecting the company’s balance sheet and profit and loss account. The exposure does not reflect an actual cash loss unless dividends are being declared.

• Economic exposure – The trading position of the business is at risk due to adverse affects on the short and long term movements of exchange rates.

(Arnold, 2008)

Economic exposure can be classified into two separate definitions.

1. Direct Economic Exposure - Expected future income and payments are in foreign currency and have not yet been made.


2. Indirect economic exposure - Long term risks from adverse developments in the company’s home country can result in foreign competitors benefitting from exchange rate movements.
(Arnold, 2008)

The Swiss National Bank (SNB) conducts the country’s monetary policy as an independent central bank; the bank is there to act in the best interests of the country (SNB, 2012). Philipp Hildebrand, the chairman of the SNB, resigned with immediate effect on 09 January 2012 (BBC News, 2012). Philipp Hildebrand had come under scrutiny in recent months after some of his recent personal transactions have been questioned. Kashya Hildebrand, Philipp’s wife, exchanged Swiss Francs and bought $504,000 (£323,024) in August 2011, three weeks before the bank intervened to reduce the value of the Swiss Franc. She later sold these dollars to buy a property (BBC News 2012).Mr Hildebrand denied that he had any knowledge of these antics. People are now questioning whether Mr Hildebrand was aware of this. Was he actually fully aware of this situation and was he only considering his own benefits rather than Switzerland’s?

Graph 1

(Trading Economics, 2012)

Graph 2

(x-rates, 2012)

Graph 1 shows the sudden drop in the Swiss Franc in early August 2011. The affect of the currency dropping dramatically so suddenly will have affected lots of businesses worldwide. Every form of currency exposure will have occurred under different circumstances as a result of this event. Graph 2 shows the increase in US Dollars in comparison to Swiss Francs. It is clear that in August 2011 the value of the US Dollar increased immensely. The reason for the increase is from a direct result of the decrease in the Swiss Franc, as shown in graph 1.

Kashya Hildebrand, Philipp’s wife, was able to benefit from exchanging Swiss Francs for US Dollars before the Swiss Franc decreased in value. As a result of this, Kashya was able to receive more US Dollars in this exchange than she would have weeks later. A property was bought with these US Dollars, meaning that the property cost her less. As graph 2 shows, the Swiss Franc increased back to a similar price to July 2011.

One of the SNB’s primary objectives is to be aware of the country’s economic developments and declines (SNB, 2012). The idea is that if the bank is run correctly then economic growth will eventually occur. If Mr Hildebrand had followed these objectives thoroughly then it is possible that this situation would never have occurred. The Swiss Franc is ranked fifth in the global foreign exchange market turnover; behind the US Dollar, the Euro, The English Pound and the Japanese Yen (Retail FX, 2012).

I believe that Philipp Hildebrand was correct to resign from his current role at the SNB. There was a lot of attention brought to this story, following recent scrutinised events at national banks such as RBS and Barclays. Although Mr Hildebrand denies knowledge of his wife’s actions, many believe that he would have been aware of this. Others believe that he would have been the reason as to why his wife was able to attain these profits as he would have been aware of the upcoming effect on the Swiss Franc. Passing on this information to his wife would enable her to take advantage of the situation, like she did. I believe that Mr Hildebrand’s resignation speaks volumes and suggests that he may have been feeling the pressures from his own guilt. If a manager or director is more concerned about their own personal well being over the benefits of the company, then it is not possible for them to remain in their role.

Sources used: Arnold, BBC News, Retail FX, SNB, Trading Economics, x-rates