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Insight to All Things Currency and Treasury Management

After reporting one of the lowest-recorded negative currency impacts since the inception of the FiREapps Q2 2018 Currency Impact Report™ (CIR) in Q1 2018, North American companies’ impacts took a turn in Q2. North American corporations reported a 2,657 percent increase in losses due to FX, with $1.02 billion in quantified negative impacts, as compared to the $37 in Q1 2018.

A benchmarking tool for corporations, the Q2 2018 CIR shows a collective quantified negative currency impact to both North American and European companies of $15.44 billion.
 
European companies accounted for $14.42 billion of this impact, continuing to report higher losses than we have seen in the past two years after a spike in impacts in Q1 2018.
 
Even after a quarter of large impacts for European corporations and low impacts for North American corporations in Q1 2018, both saw an increase in the number of companies reporting negative currency impact in Q2 2018. There was a 150 percent increase in the number of North American companies reporting impacts in Q2 2018 and a 16 percent increase for European companies. Overall, 123 companies reported impacts, as compared to 85 the previous quarter.

 
 

WHICH CURRENCIES ARE IMPACTING COMPANIES?

 
FiREapps has always advocated for the importance of currency awareness. As companies expand globally, they likely find themselves exposed to new currencies – not just the local currency of a new entity, but possibly other currencies that the entity is doing business in as well.
 
What is often the case for organizations that are not currency aware, is that they find themselves susceptible to currency movements that can impact earnings – especially if it is a currency they perceive to be a smaller threat and are not fully managing.
 
In Q2 2018, many organizations were left susceptible to currencies that make the list as most volatile every quarter.

 
The Chinese renminbi and euro were the two most volatile currencies as weighted by GDP percentage for the third quarter in a row. What is surprising, is that organizations continue to be impacted by these currencies.
 
North American companies named the Euro as the most impactful currency in Q2 2018 and the Chinese renminbi as the second most impactful. And European companies named the euro as the most impactful currency with the renminbi as the third most impactful.
 
 

THE BOTTOM LINE

 
We continually see North American and European companies naming the same currencies as most impactful to them – currencies that have generally remained the most volatile quarter after quarter.
 
But what can be done about this?
 
It is possible for organizations to gain insight into all of their currency exposures – not just the ones they do the most business in – and manage that risk. By managing it, whether that includes hedging or not, companies can then both avoid potential impacts and ensure that they are accurately conveying possible risk to analysts, shareholders, the CFO and the board and managing their expectations.
 
With the proper tools and accurate, complete and timely data, many organizations have proven that it is possible to lower their EPS impact to less than one cent and dramatically reduce risk and costs.
 
To learn more about how North American and European multinationals were impacted by FX, download the FiREapps Q2 2018 Currency Impact Report.
 
For more information on how you can better manage your currency risk and avoid impacts from currency volatility, schedule a demo.