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Review your hedging strategy now for volatile times ahead

According to the Corporate Earnings Currency Impact Report, published by FiREapps, the total quantified negative currency impact in 2015 Q1 (among North American and European corporates) was $31.68 billion. The report, by FiREapps, highlights how currency volatility is having a significant impact on reported corporate earnings, even more so than at the height of the euro crisis.

By comparison, the company reported that, during the height of the euro crisis in Q2 and Q3 2012, North America-based multinationals were reporting headwinds of $20.27 billion and $22.73 billion, respectively.

CEO and co-founder of FiREapps, Wolfgang Koester, writes in an article on AFPonline: “With such high currency volatility, the cost of derivative-based hedging is rising in many cases, making efficiently managing currency risk more important than ever. Treasury teams have to look for the most efficient methods of hedging—which may mean expanding their strategy.”

Koester continues: “Given that volatility is here to stay, and companies are more exposed, it is essential to find the most efficient ways to manage currency exposure.”

He gives the following three guidelines for companies looking to mitigate volatility in FX across their operations:

  • Keep key stakeholders informed, including the board of directors, investors and analysts, so there no surprises at any point.
  • Take advantage of or create natural offsets to eliminate unnecessary exposures.
  • Analyse all currency pairs to prioritise management strategy.

This item appears in the following sections:
FX Management & Crypto
Buying & Selling FX
Risk Management
FX Hedging & Risk Management

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