Exchange Rate Risks in Türkiye and Protection Strategies for Foreign Companies

Türkiye’s economy during 2024–2025 has undergone significant exchange rate dynamics that present both challenges and opportunities for international entrepreneurs. Understanding these shifts and implementing effective risk management strategies are essential for sustainable operations.

Current Exchange Rate Conditions and Volatility Analysis

USD/Turkish Lira Movements

By the end of 2023, the USD/TRY exchange rate stood at approximately 29.5 lira. Throughout 2024, it rose to around 35 lira, representing an 18% annual increase. This rise remained below inflation levels, suggesting a relative real appreciation of the Turkish lira. The exchange rate stability seen in 2024 stands in contrast with the sharp 30–40% fluctuations observed during late 2021. Türkiye’s tight monetary policy and gradual stabilization program helped maintain currency movements within manageable limits.

Central Bank Reserves

Foreign exchange reserves strengthened notably. Total reserves grew from 127.1 billion dollars at the start of 2023 to surpass 163 billion dollars by December 2024. This build-up provided a buffer against external shocks and improved foreign currency liquidity, reinforcing confidence in macroeconomic management. For latest data, the Central Bank of Türkiye (TCMB) provides weekly reports on reserve levels.

Main Sources of Exchange Rate Risk for Foreign Companies

Corporate Foreign Currency Exposure

By June 2025, the net foreign currency open position of Turkish companies reached 186 billion dollars. The main driver behind this figure was firms turning to foreign currency borrowing to avoid high borrowing costs in Turkish lira. While this approach reduced short-term financing costs, it heightened long-term exposure to exchange rate risk.

Types of Currency-Related Risks

Companies borrowing or operating in foreign currencies face three key risks:

• exchange rate risk: losses arising from lira depreciation against foreign currencies
• interest rate risk: exposure to rate differentials affecting debt servicing costs
• valuation and accounting risk: distortions in inflation-adjusted financial reporting

Market Environment and Foreign Investment Dynamics

External Reputation and Credit Conditions

Türkiye’s international financial reputation improved significantly in 2024. The country’s CDS premium fell from 664 points in May 2023 to around 260 by the end of 2024. The exit from the Financial Action Task Force’s gray list in June 2024 also bolstered investor confidence. These improvements contributed to enhanced access to global credit markets.

Foreign Investor Activity

In 2024, foreign investors prioritized the bond market through carry trade strategies, realizing a net 16.1 billion dollars in government bond purchases, while overall stock market participation declined. By August 2025, however, foreign ownership on the Borsa İstanbul reached 39.1%, reflecting renewed interest in Turkish equities amid the start of interest rate reductions.

Hedging Instruments and Corporate Protection Strategies

Use of Derivative Tools

Corporate hedging strategies in Türkiye diversified throughout 2024. The following are the most widely used instruments:

• forward contracts (30%): used to lock exchange rates for future transactions
• interest rate swaps (25%): manage both currency and rate fluctuations
• cross-currency swaps (20%): offset combined exchange and interest risks
• other derivatives (25%): tailor-made instruments and option strategies

Effectiveness of Hedging Practices

Around 58% of Turkish corporates actively hedge currency risk, 25% hedge interest rate risk, and 17% hedge other financial exposures. Despite this progress, a significant share of businesses remain partially unhedged, leaving them exposed to exchange rate-driven valuation losses. Strengthening derivative market participation and internal risk management frameworks remains essential.

Sectoral Risks and Financial Pressures

Financing Costs

Türkiye’s tight monetary policy in 2023–2024 resulted in high lira-denominated financing costs. Consequently, companies increasingly substituted domestic loans with cheaper foreign currency borrowing—reducing financing costs but increasing foreign exchange risk. As interest rate cuts take effect in 2025, this imbalance may gradually ease, although risk management discipline will remain crucial.

Key Developments and Risk Factors in 2025

Interest Rate Adjustments

Interest rate cuts in 2025 have created expectations of moderate exchange rate increases. Similar moves by the Federal Reserve and European Central Bank contributed to global liquidity improvement, potentially encouraging additional foreign capital inflows to Türkiye.

Inflation Outlook

International financial institutions revised Türkiye’s inflation expectations slightly downward. For instance, J.P. Morgan adjusted its 2025 forecast from 43.5% to 42.5%. This moderation supports more predictable monetary policy and investment planning.

Growth Dynamics

Economic growth is expected to moderate around 2.5–2.6% in 2025. This steady growth limits potential pressure on the exchange rate by controlling import demand while sustaining investor interest in Türkiye’s large domestic market.

Recommendations for International Entrepreneurs

Comprehensive Risk Assessment

Foreign businesses operating in Türkiye should evaluate exchange rate trends, inflation, and sectoral sensitivities together. The growing foreign currency exposure within the corporate sector highlights the importance of more structured risk management policies.

Financing and Investment Strategies

When financing long-term projects, borrowing in foreign currency may appear attractive. However, it necessitates an active hedging policy through derivatives. Lira-denominated financing eliminates currency exposure but comes with higher interest costs. A balanced funding structure, supported by hedging tools, provides optimal protection.

Operational Adaptability

Companies maintaining cost structures in Turkish lira and generating steady local-currency revenues are better positioned to withstand exchange rate movements. In 2025, decreasing interest rate differentials may redirect investors from bonds back to equities, creating new opportunities for partnership and expansion.

Strengthening Governance and Compliance

Following Türkiye’s removal from the gray list, transparency and compliance standards have drawn more international scrutiny. Establishing robust financial reporting and risk governance systems, aligned with global norms, enhances corporate credibility and ensures greater resilience to exchange rate shocks.

Exchange rate risk in Türkiye remains a critical consideration for all foreign investors. Success in the Turkish market in 2025 and beyond depends on a clear understanding of macroeconomic trends, proactive use of hedging mechanisms, and strong alignment with transparent corporate governance standards.