Insight to All Things Currency and Treasury Management

The euro tends to be one of the largest exposures most corporations have. The biggest danger in FX management right now may be a lax attitude to euro exposure.

As the first round of presidential elections in France near, the question of whether France will exit the EU looms. Companies suffered big FX hits after Brexit and rumors of Frexit can be troubling, but the outcome of the election should be of no concern to corporates – if you are confident in your exposures the threat of a French departure from the EU doesn’t need to have material impacts.

A major mistake corporates made during Brexit was that they expected a different outcome and took bets based on their prediction, resulting in major foreign currency hits. The lesson to be learned from Brexit is that corporates should not be in the business of speculating on currencies. Planning to hedge less or more because of an anticipated electoral outcome is speculating and means a company is not taking the proper steps to manage financial risk.

The Calm in the Euro Storm

The impact of the presidential election does not just concern France; it goes beyond to the upcoming German elections and the future of the European Union.

Although not necessarily the riskiest currency exposure to corporates, the euro tends to be one of the largest exposures corporations have. The biggest danger is the recent lack of euro movement – a lax attitude to euro exposure during this non-volatile period is risky.

Brexit proves multinational companies need to protect their business from surprises. The major step that can save corporates from seeing substantial FX impact no matter the outcome of the election is to protect themselves from volatility and impacts on the euro right now.

Know Your Euro Exposure

How do companies make sure they have a better understanding of how exposed they are to the euro? It’s a fundamental question that corporates need to have an answer for.

The outcome of the French presidential election is unknown and at this point seems like it will be too close to call. The only thing any corporate should be worrying about is protecting their euro exposure now, not worrying about explaining unexpected results after the fact. At the moment, it is amazingly inexpensive to hedge against euro exposure – meaning the cost vs. reward is huge. Anyone who is not anticipating volatility is playing a risky game with no upside.

Whether looking at balance sheet or forecasted revenues and/or expenses, corporates who protect themselves and their exposures have little to worry about – no matter the turn the elections take. From a corporate perspective, significant euro volatility will occur – either France leaves the EU and the euro or not. One of many learnings from Brexit is that corporates must protect their business from surprises.

In an environment where the future and/or direction of the euro is uncertain, it’s of the utmost importance to be currency aware and ready for the possibility of increased euro volatility. Accurate and timely data with clear visibility into where exposures lie ensure you’re prepared for the next crisis by knowing your euro exposure. The outcome of the French elections doesn’t need to have unexpected impacts on your financial statements.

The bottom line re the Euro and the French election is that you will receive questions about currency exposures and potential impacts!