Thought Leadership Courtesy of FiREapps
Global corporations are asking not only “How low will the pound go?” but, more importantly, “How will Brexit impact the corporation across all of its currency pairs [which may number in the hundreds]?”
China's move, just two days after saying it would not devalue its currency, is unfortunately business as usual.
Volatility will no longer be the "new normal" but just the norm; it will be the "year of the yuan"; and FP&A teams will be pressed for insights.
Forget about the idea of predictable currency cycles in 2016: currency volatility that arises anywhere, anytime will be normal; making the associated business risks facts of life for multinational corporations.
The big currency story in 2016 will be one of yuan liberalization—and the very significant business risk it represents for global companies. But the yuan won’t be the only currency story.
Currency volatility created more intense headwinds in the first quarter than even at the height of the euro crisis. But some companies are managing through the volatility, with no currency surprises. One thing the treasury teams at those companies have in common: confidence. It is the single most important element in a well-run currency risk management program.
With such high currency volatility, the cost of derivative-based hedging is rising in many cases, making efficiently managing currency risk more important than ever. Treasury teams have to look for the most efficient methods of hedging—which may mean expanding their strategy.
Formally tapping the knowledge base of a cross-functional team helps treasury better manage currency exposures—and helps the corporate treasurer become more strategic.
The past few weeks have been a wild ride in the currency markets. The storm has been brewing for months, but rose to a new level on January 15.
The fall of the Russian rouble portends rough seas ahead for multinational corporates and the challenge of dealing with its consequences will undoubtedly be felt the most in Europe. This is the kind of crisis that will separate the effective risk managers from the rest - rewarding those corporates that can manage through intense volatility, and punishing those that can’t.