Insight to All Things Currency and Treasury Management

This blog post is based on my article “Below the Surface,” which examined unseen currency impacts, was published in the October issue of AFP Exchange. Read the full article on AFP Online.

For both short- and long-term investors, investment decisions are based on expectations. So when a company – public or private – misses quarterly financial expectations, that can have long-term effects on its investment prospects.

Many factors affect whether a company meets its quarterly expectations or not; foreign currency is one. Most corporate executives are by now aware of the immediate impacts that quarterly currency surprises can have on revenues. But currency surprises can also generate ripple effects that impact the company over the long-term, far beyond that quarter. In many cases those longer-term impacts are not well understood, because they’re not as immediately visible; they’re below the surface. This is true for both public companies and private companies.

A metaphor is applicable here. The relationship between long-term and short-term impacts of currency surprises is like an iceberg. While it is the top 10 percent of the iceberg that is most visible, it is the bottom 90 percent that can cause the most damage – that can sink a 46,000-ton ship.

Erosion of revenue is a frequently cited impact of currency surprises. But it is the longer-term, more fundamental (but less visible) impacts that are the most potentially damaging. When a company’s revenue is regularly eroded by currency surprises, it has less cash available for productive activity. It can face credit rating downgrades, debt covenant breaches, delayed hiring plans or even head count reductions, and re-negotiated customer and supplier agreements.

Ultimately, the company’s options become limited – which constrains its ability to grow profitably, and to meet investors’ expectations over the long-term.


After the RMS Titanic sank in 1912, the International Ice Patrol was formed to find and alert ships to icebergs. The Ice Patrol collects data from aircraft fly-overs, radar, and ships’ ice sightings, uses computer modeling to predict the path of icebergs, and then warns ships via radio and the Internet. The risk still remains, but when ships have full visibility into where the icebergs are, they plan their routes accordingly.

Similarly, there is nothing that will eliminate currency volatility and the risk it presents to multinational corporations. But when companies have accurate, complete, and timely visibility into their exposure to currency volatility – across their entire portfolio of currencies – they can develop their management strategy accordingly.

Read the full “Below the Surface” article beginning on page 22 of the October issue of AFP Exchange, which is available in print and online at

1. Ohio State University