FX Best Practices
Community
www.fxbestpractices.com is a knowledge center sponsored and maintained by FiREapps™ in partnership with Thunderbird School of Global Management to help corporate finance managers learn, educate and share ideas about foreign exchange best practices. It is designed to be an interactive community where the mysteries of corporate foreign exchange are solved and market knowledge grows over time.
Resources
Featured Whitepaper:
In today's global economy, the impact of foreign exchange management has touched U.S. companies of every size and in every industry. If your firm is like any one of the over 100 companies surveyed in FiREapps' 2006 Cross-Industry Analysis of Common Challenges and Concerns for Corporate Foreign Exchange Management, your struggle to define and quantify your true currency exposure often means that you're unaware of compliance or economic risks until it's too late.
This 15-page survey of over 100 multinational companies reveals:
- The top four challenges your organization must overcome to achieve accurate, reliable and manageable foreign exchange exposure processes
- The five most common errors that plague 95% of spreadsheet-driven FX practices
- The top four reasons multinational companies fail to comply with FAS 52
View additional FiREapps whitepapers and online documents
Common Challenges and Best Practice Solutions
Challenge: How Can I understand my true foreign exchange exposure: their sources and magnitude, when I can't trust the data?
Today, many foreign exchange managers have little visibility into the details of the data they are using to identify and manage their foreign exchange exposures—essentially, flying blind as they attempt to mitigate risk. That’s because they are forced to rely on summary-level data and overly complex error prone spreadsheets to try to understand their foreign exchange exposures.
Impact:
- Low confidence in the data driving decisions
- Difficulty identifying the sources of volatility
- Institutionalized and random errors leading to costly mistakes and potential compliance concerns
Challenge: "How can I efficiently and effectively manage FX exposures to my balance sheet with the time and resources I have today?"
For many multinational corporations, one of the biggest challenges to managing foreign exchange exposures is complex intercompany relationships. In many cases, cross-currency transactions from regional to functional and ultimately to corporate reporting currencies cloud the true magnitude of the organization’s total exposure. FX managers struggle with how to hedge, how to pay and how to settle these intercompany transactions.
Relying on manual processes and spreadsheets to manage these exposures results in more time spent gathering and managing data than analyzing the results and making informed decisions. All too often, this means that decisions are made with too little information, with too little time to delve into the details and resolve issues.
Impact:
- Failure to hedge exposures due to a lack of confidence/capacity to review and execute
- Inability to monitor and manage all currencies—resulting in unanticipated losses during periods of high volatility
- Inability to keep up with a dynamic market—new entities, accounts and currency exposures are not added and managed in a timely manner
Challenge: Eliminating risk by hedging currencies can be costly, especially 11th-hour decisions. How can I lower transaction costs while reducing exposure and eliminating risk?
Last-minute, end-of-the-month hedging decisions that are a result of inefficient, processes can be costly, not only in terms of time and effort, but also in terms of related transaction costs negotiated under less than favorable conditions. Companies who are able to time their hedging decisions for maximum advantage based on the time of day and the time of month can realize significant savings.
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