Deloitte's 2016 Global Foreign Exchange Survey brought several issues to light and underlined how corporate treasury manages foreign exchange exposures doesn't always correlate to what the board expects.
Much of the 'disconnect' when it comes to FX risk is down to a lack of visibility of actual exposures, with the survey finding that nearly 60 per cent of respondents citing this as one of their main FX challenges.
Management of corporate FX risks is 'ineffective'
In an interview with Bloomberg, Deloitte’s Niklas Bergentoft, treasury transformation and technology lead, referred to the lack of data on FX risks, saying: “If you cannot see it, you cannot manage it so it is not a surprise that we are seeing ineffectiveness.”
He also adds that multiple sources of data on FX exposures are a big problem for companies: “Many companies use two or more sources or systems to gather exposures and as a result companies need to focus on real-time integration in order to achieve it and maintain data quality.”
The survey found that, of the companies that gather information on FX exposures, about half are using manual processes to collect and analyse the data. Other survey results include:
- 41 per cent of companies that manage FX are using a benchmark or profitability measure to measure the commercial effectiveness of their hedging programme, such as impact to margin or earnings per share;
- 21 per cent don’t use any kind of benchmark to measure commercial effectiveness of FX risk management; and
- 15 per cent do analysis on stress tests and scenario planning.
Treasury must invest in FX risk management tools and technology
Bergentoft underlined the need for investment in the treasury function, including tools and technologies that can help to make FX risk management more automated and effective.
See treasury's top 10 challenges in Deloitte's graph below:
CTMfile take: with $112.04 billion in corporate revenue wiped out due to FX volatility last year according to last month's Fireapps report, companies really need to get a better handle on exact and automated data from all their FX exposures. It's a huge task and Deloitte is right that investment is needed.
BIS announces 2016 survey of FX and OTC derivatives markets
The Bank for International Settlements has announced the 11th Triennial Central Bank Survey of Foreign Exchange and Over-The-Counter Derivatives Market Activity.
Corporates ill prepared for FX volatility ahead – Deloitte survey
Deloitte's survey of 133 FX risk managers is a response to recent volatility in the FX market over the past year and its impact on businesses. It gives a snapshot of how corporates expect to cope with volatility
FiREapps: In 2015: $112.04 bn in revenue was erased by currency headwinds
Q4 Currency Report over 80% larger than Q4 2014 and concludes that “we are reaching a tipping point for disclosures of currency headwinds in north american corporate earnings calls”