Here I’ll explain five things you need to know about what’s going on in Cyprus, how it intensifies currency volatility in the eurozone and beyond, and what you can do about it.
Most of the media attention focused on the currency war recently has been on how dangerous it is. But that begs the question: if currency war is so bad, and it creates a competitive devaluation race to the bottom, why do countries engage in it? Currency wars are politically motivated, and politicians often find strong incentives to engage in competitive devaluation. Here’s why.
Multinational corporations that have not become currency agnostic are seeing significant currency surprises for two reasons: first, is increasing internationalization, which opens MNCs up to greater currency exposure. Second is heightened currency volatility caused by the raging currency war.
The Venezuelan government probably doesn’t view this huge competitive devaluation as an act of currency warfare, but for the countries, and the companies, affected, the impact is the same. The casualties of this war are the multinational corporations that have not taken steps to manage currency risk.
One of the common themes that came out of the Alexander Hamilton Awards ceremony last week was the impact that cloud-based technologies and big data strategies are having in corporate finance and how the financial crisis was a catalyst event to spur a profound wave of innovation within corporate finance departments.