2016 Global Foreign Exchange Survey
Singapore, 1 March 2016 — With currency shifts making a significant impact on company profits and with current volatility in Asian currencies, risk in the foreign exchange (FX) market is once again in the spotlight. According to a new survey of global corporations by Deloitte, over half (56 percent) of respondents reported that being able to forecast and quantify exposures is the biggest challenge in managing FX risk.
FX exposures exist throughout the organisation’s value chain and often need to be identified by integrating information from multiple systems and sources. Indeed, nearly one third of corporations rely on three or more sources, making exposures harder to spot.
Benny Koh, Treasury Advisory Services Leader at Deloitte Southeast Asia commented: “As the saying goes, you can only manage what you can measure. Without a good grasp of the company’s exposures, impact from currency rate movements cannot be anticipated, communicated or controlled. The recent bout of Asian currency volatility is certainly causing organisations to review their existing practices.”
“Moreover, there is a tendency to focus on risk information that is based on the ‘here and now’, rather than using those information to shape year-on-year performance. Only 11 percent of our respondents cited managing year-on-year financial performance as a primary hedging objective.”
Deloitte surveyed 133 global corporations on the challenges of managing currency risk effectively in the 2016 Global Foreign Exchange (FX) Survey. The survey also revealed:
- More than a third of respondents feel that the Board and executives do not receive sufficient information on FX exposure and risk management, and only 41 percent report tracking impact on gross margin and other profitability measures such as earnings per share (EPS) impact.
- Nearly a quarter of respondents do not monitor whether their FX risk management activities achieve the defined objectives. Contributing to the challenge of identifying FX exposures is the lack of automation with 62 percent of survey respondents indicating that they use manual forecasts.
“Chances are you are going to hedge less if you don’t believe the forecasts. The survey findings show a direct correlation between levels of automation and confidence in these forecasts. Manual information and processes cause late and unreliable forecasts. Therefore corporate treasurers need to share these challenges with executives and global teams, along with a recommendation for investment in the tools and technology to alleviate the problem,” added Niklas Bergentoft, Principal in Global Treasury Advisory Services for Deloitte Advisory.
“Conversely Boards should push back on treasurers for greater visibility into stress tests, better staple reporting and more complex analysis. Companies could be taking a hit now by not supporting the need for treasury’s roles to change.”
This year’s survey also covers effectiveness of centralised and decentralised models, hedging strategies and transaction exposures, and was created in response to recent FX volatility impact on businesses.