Insight to All Things Currency and Treasury Management

2016 has been a year of massive currency volatility. There’s no indication that 2017 will be any better; in fact, there are many reasons to believe that volatility will get worse.

Our aim here is to offer you actionable steps you can take to reduce the impact of market volatility on your business. Often, we talk about specific steps – such as knowing all of your exposures and identifying your largest risks (which may not be your largest exposures), working to improve cash flow forecast accuracy for managing currency risk to cash flow, and communicating the cost associated with managing currency risk and the risk associated with not managing it.

Overarching it all is this: companies that keep their balance sheet impact to less than $.01 EPS and cash flow impact not material, relative to net income, are currency aware – not just in Treasury, but across the entire organization.

Currency awareness across the organization

John Connors, former CFO at Microsoft, explained currency awareness this way in an article in Directorship magazine:

“In currency-aware organizations, every business leader understands the impact of currency risk to their functions and uses that information to make better decisions. The board, in conjunction with the CFO, sets the policy by which currency is managed, determining what level of risk is acceptable, and at what level of risk must currency be managed. Treasury, then, is equipped with the tools to manage risk according to that policy, and, as a result, currency-aware organizations aren’t surprised by currency impacts on earnings. They manage the risk such that currency impact is less than $0.01 earnings per share (EPS), no matter which currencies move, in which direction.”

How do companies put currency awareness into practice? They have regular meetings with stakeholders from across the business. We call this a currency roundtable. This is how our Vice President of Strategic Markets, Andy Gage, described it in Treasury & Risk:

“Any treasurer of a multinational organization who’s looking to make a substantive contribution to the company’s strategic decision-making should invite leaders from across the organization to participate in an ongoing collaborative dialogue about how currency is impacting the company and how best to manage that risk. The currency roundtable needs to include one or more representatives of each of these groups: Board, Supply Chain & Operations, Controller, FP&A, Treasury, C-Suite, Tax, and Local Finance” (see graphic below).


A currency analytics platform

To be sure, there are companies that do well managing currency risk with manual processes and technology no more sophisticated than spreadsheets. But for most companies, manual processes and outdated technology spell trouble for the accuracy, completeness, and timeliness of their exposure definition, analytics, and risk management. (Dive into the details of why that happens in The Biggest FX Problem That No One Talks About.)

As FiREapps CEO Wolfgang Koester explained recently on CNBC, as a currency analytics platform, FiREapps “helps corporations manage the risk associated with currency volatility, both organically and through hedging.” That is help many corporations are going to need even more in 2017 as uncertainty continues its reign.

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