Citi have released a report on Managing FX Risk in Turbulent Times. The 2016 report information is from their collective Citi Treasury Diagnostics (CTD) analysis, which are based on comprehensive results gathered from a diverse group of large corporates, industries and geographies. These reveal key trends in the way corporate treasurers are managing uncertainty. Some the main Risk Management findings were:

• FX risk management practices vary significantly by region, particularly around objectives, the emphasis placed on types of exposures, and the approaches used to hedge risks:
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  • Source & Copyright©2017 - Citi

• FX risk management policies are broadening the scope to include more strategic and tactical methodologies, such as assessing the impact of FX on indicators such as Net Debt to EBITDA
• while reducing earnings volatility remains a priority, the number of corporates actively taking measures to mitigate effects volatility in earnings is relatively low
• over half of the companies surveyed do not differentiate between emerging markets (EM) and develop markets (DM) transactional hedging practices
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  • Source & Copyright©2017 - Citi

• while many organisations have existing FX risk management programs in place, companies tend to leverage traditional strategies, practices, products, tools and technology
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  • Source & Copyright©2017 - Citi

• some corporates have focused on leveraging cash management processes, such as pooling and cash flow forecasting, to improve the effectiveness of the risk management programs
• corporations continue to deploy various constructs to achieve greater centralisation and more effective manage FX risk, however, natural risk management techniques, such as netting, appear to be missed opportunity among a number of companies
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  • Source & Copyright©2017 - Citi

• despite the increasing recognition of technology as an important enabler to meeting risk management objectives, over half of survey participants reported that their treasury management system does not support financial risk management processes.

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CTMfile take:There are worrying signs in this research that many corporate treasuries are no where near as advanced as many would expect. Citi put it politely in their conclusion, after saying, “From our advisory work, we are seeing the leading corporate's take a more proactive and flexible approach to risk management by adapting to changing market business conditions”, THEN they write, “Given today's changing market conditions and dynamics, the question is whether those who are maintaining the status quo can really afford to continue to do so.” THEY HAVE BEEN WARNED.