Insight to All Things Currency and Treasury Management

From Brexit, to last November’s U.S. presidential election, to the recent first round of the French Election, there has been no shortage of political surprises in recent months emphasizing the need for FX risk management. Each of these serve as reminders that it is wise to be prepared for the unexpected.

With this in mind, now may be a good time for corporate treasurers to seek out executive buy-in to implement next-generation FX management capabilities into their corporate structure.

In fact, it is far more common to find treasurers proactively advocating for new or improved in-house FX management programs – programs that call for a more strategic focus. Ten years ago, it was less common to see treasury professionals offering this level of encouragement.

But global currency surprises alone may not be sufficient to sell the C-suite on the need for more advanced FX analytics and tools. Those treasurers intent on convincing their bosses of this need may want to frame their arguments in a way that non-treasury professional can appreciate.

I have encountered other treasury professionals faced with this challenge and they usually succeeded in convincing their CFO and other executives by making a business case. If you are considering building a business case for a next-generation currency risk management program, consider these five “making the case” elements:

#1: Communicating the value of FX Risk Management to your CFO/CEO/Board

Implementing a sophisticated currency risk management program is an opportunity to enhance controls. In this environment, many companies are assessing their processes, as FX impacts can be an indication of a lack of internal controls (other times, that assessment is a response to audit requirements). These organizations are implementing process automation to eliminate the “last mile” of spreadsheets in the FX management process.

  • The ramifications of taking a currency hit extend beyond impact to EPS or margin. When a company’s earnings are regularly eroded and costs regularly increased by currency surprises, the company ultimately has less cash available for productive activities. That loss has ripple effects, including credit rating downgrades that raise the company’s cost of capital and debt covenant breaches that limit access to liquidity.
  • Your peers have easily and quickly implemented next-generation currency risk management programs. Cloud-based technology reduces the complexity of currency risk management. Implementing a cloud-based exposure analytics tool is not even a true IT project; it is less than a day’s worth of IT work. Post-implementation, companies see immediate results, including the elimination of currency surprises, reduced risk, and lower costs.

#2: Quantification of your organization’s FX risk management

The cost and benefit of managing currency risk can be calculated with a tool we call the Cost and Risk Efficiency (CoRE™) Analysis. It quantifies your current currency exposures, determines the potential impact to earnings based on a Value at Risk (VaR) calculation, and identifies opportunities to manage FX risk for the least cost and/or greatest potential economic return.

#3: Examples of how next-generation currency management programs deliver value

Arm yourself with examples of companies that have implemented next-generation currency risk management programs, and the value they have realized. A good place to start is with winners of FX risk management awards. There are many such awards; among the more prestigious treasury and risk management awards are…

You can also find detailed case studies at or check out the Treasury and Risk webinar with Ericsson (one of these next-generation programs).

#4: Measure the potential ROI that currency risk strategies offer

In most cases the benefit of a next-generation currency risk management program far outweighs its cost. It is almost always true that companies can’t afford not to have such programs. Of course, the return on investment will depend on the type of solution you implement and the costs you are currently incurring and stand to save.

Investment consideration factors include the usual: cost of the solution and cost of implementation (considering time and complexity). It is also worth noting that the cost of the solution can often be subsidized through the FiREapps Banking Partner Program.

Return consideration factors include:

  • Improved risk management (the ability to manage impact to within a preset threshold)
  • Operational efficiency improvements (most organizations significantly reduce total hours spent on FX management when they implement a next-generation management program)
  • Reduced transaction costs (by avoiding mis-hedging and recognizing opportunities for natural hedging and organic exposure elimination)

#5: Generating early wins with full-scale currency management programs

Because the footprint of the technology that powers these next-generation currency risk management programs isn’t anything near the scope and scale of an ERP system or TMS, implementation is quick. And because implementation is led by our world class team of risk analysts, it is easy to generate quick wins (within a quarter) to prove the concept to other internal stakeholders. FiREapps for Balance Sheet, for example, is intentionally designed to help you do just that, through immediate optimization and automation of many of the most cumbersome steps of your FX exposure management process.

Bottom line

The market conditions will never be better than right now, to build a business case for a next-generation currency risk management program if you are considering a change, put these five keys to work to get the buy-in you need to make the program you are envisioning a reality.

To see how a currency analytics solution can help improve the results of your FX management program schedule your personalized demo today.