Many corporate treasurers face exposure to FX volatility on a daily basis. Whether their company foreign investments and borrowings or is importing and exporting goods and services from abroad, currency risk presents real and potentially severe financial dangers for those corporations who fail to develop effective strategies to minimize exposure.
A reported 85% of businesses are negatively affected by volatile exchange rates as evidenced by unexpected swings of revenues or in the cost of goods. Treasurers should approach management of this vulnerability from a consolidation perspective. In other words, they should try to identify FX risks on an enterprise level and then set up a holistic hedging program. This way, they may ultimately reduce the number of hedges utilized, leading to potentially significant savings.
Putting Technology Into Play
One of the prominent issues in exchange rate risk management is that treasury processes are not automated to a useful and efficient level. Insufficient or malfunctioning protocols, tedious manual data entry and workplace redundancies may result in a critical lag of time for on-point decision making. Drags in processes may certainly result in economic loss where FX management is concerned. Additionally, while the humble spreadsheet may still be widely in use in many treasuries, they may often miss the mark for timely and useful data.
Updating the technology used in treasury is an option to streamline both labor and data sharing within a corporation. Consolidated financial data may allow treasury to more easily provide more detailed and up-to-date reports. It may as well make it easier for treasurers to be compliant with changing regulations and global accounting practices.
FX risk is a fact of existence for companies engaged in the global marketplace. In volatile markets, treasurers may need to find methods of operating and reporting that help clear away the busy work and allow them to actively manage FX and other risks. An upgrade in treasury technologies may help companies get an improved grasp on risk correlations, hedge more efficiently and exchange relevant information effectively with their financial officers. A smoother-running treasury may also have more potential to better support its company´s international growth strategies. In this way, everyone shines brighter.
