Multi Year Grants and FX: A Simple Guide for Charities

Key takeaways

• Multi year grants in one currency and local spend in another create FX risk across the whole project.¹ ³

• Budget rates, scenario testing, and basic hedging tools can stabilise programme funding.¹ ²

• Clear roles between finance and programmes make FX less of a surprise and more of a managed variable.

Many charities now work with multi year grants that fund complex programmes across several countries. These grants are often approved in a donor currency such as USD, EUR, or GBP, while the real work happens in local currencies.

Over three to five years, exchange rates can move by double digit percentages. Research on donor funded projects and NGO budgets shows that this can significantly distort both costs and reported results if FX is not managed actively.¹ ³ ⁴

This guide offers a simple framework for handling FX on multi year grants without turning your finance team into a trading desk.

How multi year grants create FX exposure

Think about a typical grant:

• Donor approves 3 million in their currency for a five year programme

• Funds arrive in installments

• Country offices spend mostly in local currency on staff, partners, and supplies

If the local currency weakens against the donor currency, you may be able to do more than planned. If it strengthens, you may face budget gaps and tough choices.

A study on foreign donor funded projects notes that organisations are often required to budget and report in donor currency while actual implementation takes place in local currency, which creates significant variation due to exchange rate movements.³ University guidance on foreign currency projects echoes this concern and encourages more systematic planning.⁴

Step 1: set and use budget rates

The basic tool is a budget rate. This is an internal rate you use for planning, which may differ from the market rate on any given day.

Practical approach:

• At proposal stage, choose a reasonable rate for each major currency pair, for example donor currency against your functional currency and key local currencies

• Use those rates consistently to build the budget and activity plan

• Document the decision so everyone knows which rates were used

Treasury practitioners for NGOs recommend budget rate management as part of a broader risk mitigation toolkit.²

During implementation, you can:

• Compare actual rates to your budget rate

• Track gains or losses in a simple “FX variance” line

• Decide early when variance is big enough to require activity changes or a donor discussion

Step 2: know your “budget at risk”

Some non profit treasuries use a concept called “Budget at Risk”. This means estimating how much of your budget would be affected by a certain currency move.¹

You do not need complex software to do a basic version.

For each grant:

1. List local currency cost by year

2. Convert to the donor currency at your budget rate

3. Recalculate using a rate that is, for example, 10 percent stronger and 10 percent weaker

4. Look at the difference in donor currency terms

Advisers who have built Budget at Risk models for global non profits highlight that this kind of scenario view helps leaders make more informed decisions and understand trade offs.¹

If a 10 percent move would wipe out your contingency and force large cuts, you know that grant needs more active FX management than one where exposure is smaller.

Step 3: match FX tools to real cash flows

Once you know where the risk is, you can decide how much to manage it.

Common options:

• Hold balances in donor currency until close to when you need to spend, if local currencies tend to be volatile and donors accept this.³

• Convert to local currency in tranches instead of all at once, to spread timing risk.

• Use simple forward contracts for large known local currency outflows, such as annual partner block grants or major procurement, so you can lock the rate ahead of time (https://www.xe.com/business/forwards/).²

Advice from NGO treasury functions and international project support teams is consistent: forward contracts and planning rates, used carefully and linked to real cash flows, can reduce volatility without encouraging speculation.² ⁴

Step 4: clarify roles and communication

FX risk is financial, but the consequences are operational. It helps to make responsibilities explicit.

Examples:

• Finance owns the choice of budget rates, monitoring, and any hedging tools

• Programmes own activity planning and are responsible for adjusting plans if FX moves make some items more or less affordable

• Leadership reviews FX exposure at grant or portfolio level and decides when to raise issues with donors

Regular, light touch communication matters more than detailed reports. For example:

• A short FX note in quarterly grant reviews

• A simple dashboard showing FX variance by project

• A checklist item for country teams when they plan major local procurement

Step 5: talk to donors before problems grow

Donors know that exchange rates move. Many already have guidance on how to handle gains and losses on their funds.³ ⁵ The challenge is often timing and transparency, not principle.

Good practice includes:

• Flagging material FX gains or losses early, before the end of a project

• Explaining clearly which rates you used for budgeting and reporting

• Proposing adjustments, such as reallocation within the budget, additional outputs, or activity reshaping

International guidance on managing foreign currency in projects stresses the value of early planning and clear documentation to avoid surprises at audit time.⁴

FAQs

Do all multi year grants need FX analysis?

Not necessarily. If income and spend are mostly in the same currency, exposure may be limited. Grants with donor income in one currency and spend in several others are the most important to review.

Is it risky to use forward contracts as a charity?

Forwards can be misused if they are not linked to real cash flows. Used carefully for known payments, they are a standard way to reduce risk rather than increase it.² It is important to have clear internal rules and to work with regulated providers.

What if our team does not have FX experience?

You can start with basic steps such as budget rates and simple variance tracking. External advisers and specialist providers can help with design, but day to day use can remain straightforward.

Do donors allow us to keep FX gains?

Policies vary. Some donors require you to return gains, others allow gains to be spent within the project.³ ⁵ The key is to understand the rules for each grant and to document what you do.

Conclusion and how Xe can help

Multi year grants are a chance to deliver deep, long term impact. FX risk does not need to undermine that. With budget rates, budget at risk thinking, and a few simple tools, charities can turn exchange rates from a source of surprise into something that is monitored and managed.

Xe Business supports NGOs and charities with multi currency accounts, international payments, and forward contracts that can be tailored to real grant schedules and partner funding plans. To explore options, visit Xe Business or speak with a specialist about your portfolio.

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The content within this blog post is for informational purposes only and is not intended to constitute financial, legal, or tax advice. All figures and data are based on publicly available sources at the time of writing and are subject to change. Actual conditions may vary depending on location, timing, and personal circumstances. We recommend consulting official government resources or a licensed professional for the most up-to-date and personalized guidance.

Citations

¹ Zanders, “Budget at Risk: Empowering a global non profit client with a clearer steer on FX risk” (2023).
² AFP, “How NGO Treasury Functions Manage Currency Risk” (2014).
³ Texila Journal of Management, “Exchange Rate Fluctuation and Management of Foreign Donor Funded Projects” (2024).
⁴ UCSF International Research Support Operations, “Managing Projects Involving Foreign Currency” (accessed 2025).
⁵ ForumCiv, “General Conditions for Sida Grants” section on exchange rate fluctuation (2024). euroasiapub.org

Information from these sources was taken on December 23, 2025.