The basics of a complete FX hedging programme are quite simple:

1. identify and analyse what the FX exposures are, and where they are
2. manage and execute the required hedges
3. understand and explain what happened when you hedged, i.e. why the hedge programme gain or loss is not zero, and what to do about it next time.

Nevertheless, it is fiendishly difficult to achieve, the amount data and variables involved are huge. FiREapps and Hedgetrackers have combined their leading FX hedging products into one of the most comprehensive FX hedging solutions available today.

Comprehensive FX exposure management from FiREapps and HedgeTrackers 

Source & Copyright©2014 - HedgeTrackers Inc.

The complete workflow between FiREapps FX Pro+™ and HedgeTrackers’s Capella enables controlled and auditable collaboration between treasury and site controllers to improve FX management accuracy, efficiency, and speed of analysis.

1 - Understanding what and where FX exposure is 

On a daily basis, FiREapps FX Pro+™ automatically aggregates, harmonizes, and validates (including correcting misbookings, etc.) current and historical balance sheet data from SAP, providing clear visibility into current balance sheet exposures with no need for input from site Controllers. 

Next, FiREapps then carries out Automated exposure definition and calculation: FiREapps FX Pro+™ applies companiy’s business rules and various input parameters to define accurately and calculate net balance sheet exposure for each site. Next it checks the exposure data integrity and provides flexible exposure analytics.

Then FiREapps FX Pro+™ calculates and displays recommended hedges based on various input parameters defined by the user. After Treasury and the site Controllers review, modify if necessary, and approve the recommendations, the system evaluates the trades and, according to policy, allocates them to the owning internal counterparty.

FiREapps basically harmonizes the FX exposures and produces the recommended hedges which are then passed into Capella system for managing and executing the hedges.

2 - Managing and executing recommended hedges

In Capella trades can be consolidated and executed by the trading entity and passed to the subsidiaries in Back-to-Back trades, or executed and held at the trading entity level). Other features of Capella’s execution of the recommended hedges include:

• exposures and related trade recommendations received from FireApps can be approved and forwarded to a trading portal and then recalled with each trade’s details confirmed 
• being the system of record for all FX transactions (forwards, spots & options) and provides comprehensive reporting for daily trade management including: derivative inventory reporting by counterparty, maturity, trade date, currency, entity etc.; settlement reporting is similarly flexible with reporting by counterparty, maturity, currency, etc. 
• journal entries are prepared for each entity (including B2B trading) in their own functional currency.  This information is accumulated and consolidated into detail and summary disclosures to meet quantitative external reporting requirements all at the click of a mouse  
• CapellaFX Dashboard reporting provides management a visual analysis of counterparty exposure, hedge ratios, forward point curves, credit default risk, preview of near-term settlements by currency, etc.

3 - Understanding and explaining what happened

Explaining why FX gains and losses are not zero is critical to the credibility of any hedge programme. Capella’s RTZ feature (Reconcile To Zero) automates the search for and categorization of the sources of FX gains and losses. Hedge Trackers’ patented technology provides insights into the FX Gain/Loss positions and opportunities to address programme shortcomings, e.g. over/under hedged, period forward point costs, uncoordinated spot transactions, and timing differences, see figure.

RTZ CapellaFX dashboard

Source & Copyright©2014 - HedgeTrackers Inc.

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CTMfile take: FX risk and exposures will never disappear from the balance sheet. Nevertheless, the combination of FiREapps and Hedgetrackers systems provide a comprehensive set of tools to 1) understand what and where the FX exposure is, 2) manage and execute the recommended hedging strategy, and 3) to understand and explain what happened, at least makes it manageable. This combination of FiREapps FX Pro+™ and HedgeTrackers’s RTZ CapellaFX may not be the ultimate solution to FX exposure management, but it is close. Is this the holy grail of FX exposure management?