For multinational corporates, being ready for currency crisis can often mean preventing your organization from losing millions of dollars in impact. Extreme volatility can come out of nowhere, something we’ve seen in the market time and time again.
When a currency crisis hits, there are a number of questions that Treasurers, CFOs, and often, the board, want answered within hours. These include important piece of information like:
— What are our current exposures?
— What will the impact of this be on a go-forward basis?
— What was our hedge coverage prior?
With 7 crises in the past 8 quarters— and Brexit as the latest event to affect volatility in the market— corporate finance professionals know that it’s only a matter of time before these will need to be answered again. Fortunately for companies that were prepared, navigating Brexit didn’t include the same scrambling and uncertainty that it meant for those who weren’t.
In the end, the question isn’t whether a crisis will or will not hit— it’s will corporates be prepared?
As a multinational company, getting through a currency crisis means knowing how to:
— Respond when crisis hits
— Identify and pull critical information
— Ensure you and your team are on the same page
These should be part of a fairly mechanical process that you and your team should be able to answer and put into action within hours, not days.
So what are a few things that you can do to help prepare and successfully navigate a time of unexpected, substantial volatility?
— Create a disaster recovery plan
Similar to your IT department, create a plan detailing exactly what needs to happen when a crisis is identified. This should include details like who is involved in the crisis team, how communication should occur, how often analytics should be run, etc. Likewise, create a mock currency crisis scenario for your team to work through to test your plan and ensure efficacy. At a minimum, this should be done at least once a year to battle test your process before a real-world scenario hits.
— Have technology in place to get data quickly
Without the right technology, what could be a quick and efficient process can become cumbersome and error-prone. When a currency crisis hits, the amount of time it takes to pull data could either save or cost your company substantially. Ensure that you have on-demand access to snapshots of your corporate currency program in order to quickly benchmark and see how the crisis is effecting your FX in real-time. You can’t move quickly if you don’t have the data you need instantaneously.
— Scenario analysis
Performing scenario, or “what if” analysis, is key. Not only does this allow you to plug in what will happen to your corporate if a crisis’s visible currency gets even more volatile, it also helps you to quickly uncover what will happen if other currencies are effected, as they usually are. For example, when Brexit hit, yes— the pound took a huge plunge. But likewise, other currencies, like the euro and yuan, took residual impacts of their own. Scenario analysis lets you to strategize for worst case instances and to prepare for what could effect your entire portfolio of currencies.
— Allow for collaboration and communication
You never know where you’ll be when the next Brexit hits. As such, having immediate access to information (often in the form of cloud-based technology) will help you to get the data you need in a hurry. What’s more, ensure that there is a clear chain of communication— both between those involved in your disaster recovery plan and those that need the details throughout the organization (CFO, CEO, the board, etc.) Not only will this keep everyone on the same page, it will help to keep your mitigation efforts moving as smoothly and quickly as possible.
Although these are only part of a larger list of things your corporate can do to ensure you’re ready, by implementing these tips, you can take a step towards turning the next volatility spike from a disaster into an effectively navigable event.
Have additional questions you’d like answered about disaster recovery plans, crisis response, or what your peers have done to successfully get through events like Brexit?
Join us for our next webinar, “Currency Crisis Q&A: The Practitioner’s Guide to Navigating the Next Crisis,” hosted by FiREapps and Treasury & Risk.