Managing risk from currency fluctuations a key challenge for Corporate Treasurers

With currency shifts making a significant impact on company profits and the current volatility of Sterling, 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.

Exposures arise throughout the entire organisation and often need to be identified by interrogating multiple systems and sources. Indeed, nearly one third of corporations rely on three or more sources, making exposures harder to spot.

Karlien Porré, Partner in Deloitte’s Global Treasury Advisory Services commented: “If you can’t see it, you can’t manage it. Without accurate measurement, value erosion from negative currency rate movements can’t be anticipated or prevented. As companies become ever more international, and a period of relative calm in the FX markets has turned unsettled, this is likely to have an even greater impact. Indeed the current volatility of Sterling highlights this.

“Moreover, there is a tendency to focus what exposure risk information there is on just the ‘here and now’, rather than using it 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 centralized and decentralized models, hedging strategies and transaction exposures, and was created in response to recent FX volatility impact on businesses.

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Notes to editors

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

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The information contained in this press release is correct at the time of going to press.

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