Some responsibilities have been core to the role of treasury ever since the first departments were set up in the s, of which foreign exchange FX risk management is one.
Indeed, the first treasury association, the Association of Corporate Treasurers ACT , was founded in as corporations set up treasury functions in response to heightened market volatility, relaxation of exchange controls in in the UK, and international expansion.
How do smaller corporations in particular avoid adding complexity when seeking to reduce risk? Even the largest global corporations are not immune to the effects of negative volatility. Some would argue that as most companies operating in a sector with the same base currency will be subject to the same market effects, they only need to manage their risk to the same degree as their competitors.
With greater analyst scrutiny for example, FX was the main topic that analysts wanted to discuss during the Apple quarterly results briefing despite the eye-watering results and growing competition globally however, treasurers and CFOs cannot be complacent about managing their FX risk.
This is not surprising, given the high levels of volatility in both the FX and commodity markets, continuing international expansion resulting in exposure to a growing number of currencies, and geopolitical insecurity in many parts of the world. Given the scale of the challenge, are treasurers focusing enough on this area? In some cases, it appears that treasurers have paid more attention to liquidity risk over the past few years, with the exception of large multinational corporations and those with particularly large currency or commodity exposures.
This is starting to change, however. This is also the experience we are seeing amongst our readers, and amongst the banks that support them. For mid-cap and smaller corporations in particular, the issue is how to address FX risk efficiently, particularly given resourcing and technology constraints.
As Martin Keller, Commerzbank says,. As a result, clients want help in collating market information, and determining what to do with it. They are then seeking to design and implement a risk management strategy that makes sense for their business, and ensure the relevant controls are in place.
Ultimately, the aim is to secure the underlying business but it is not always clear how this should translate into a hedging strategy.
Furthermore, in smaller organisations that lack a defined treasury function, it is not always clear where responsibility for either strategy definition or execution should lie. For corporations with a defined treasury function, responsibility for FX policy definition is usually clear, and the need to manage FX risk at a group level is one of the factors in deciding to centralise treasury.
Larger multinationals overcome this growing scale and complexity of FX exposure by centralising FX risk management into regional or global treasury centres with specialist systems and specific expertise. Consequently, every company needs a clear definition of where responsibilities for defining and executing FX strategy should lie. Where these are disseminated, it makes sense to try to use a common platform to maintain a global view over exposures and hedging transactions.
Save PDFs of your favorite articles, authors and companies. Bookmark this article, or add to a list of your favorites within mytmi. Please complete the form below to gain free access to over 4, articles showcasing topical, pragmatic solutions and strategic insights for all treasury practitioners, from experienced treasurers and CFOs to those new to the profession.
Doing business in Africa is a marathon not a sprint, which is why global volatility and uncertainty means that corporates taking the long view on their strategy is now even more important. Aiden Shevlin of J. Morgan Asset Management discusses with the Editor how investment conditions are evolving from a period of uncertainty and currency devaluation to a more steady state - albeit with some challenges still in place for corporate investors.
The edition focuses on the key topics of data analytics, compliance and cybersecurity. While all reasonable care has been taken to ensure the accuracy of the publication, the publishers cannot accept responsibility for any errors or omissions. No paragraph or other part of this publication may be reproduced or transmitted in any form by any means, including photocopying and recording, without the written permission of P4 Publishing Ltd or in accordance with the provisions of the Copyright Act as amended.
Such written permission must also be obtained before any paragraph or other part of this publication is stored in a retrieval system of any kind. Please login to access your profile. Interested in learning more about Risk Management? Sign In Forgot Password? Why not register with us today. Treasury Leaders Looking to a Brighter African Horizon Doing business in Africa is a marathon not a sprint, which is why global volatility and uncertainty means that corporates taking the long view on their strategy is now even more important.
TMI Magazine Click here for full archive. My Life in Treasury:More...