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Insight to All Things Currency and Treasury Management

A benchmarking tool for corporations, the FiREapps Q4 2017 Currency Impact Report™ (CIR) depicts a collective $7.83 billion in negative FX impacts to both European and North American companies.

In a continued pattern of increased negative impacts, European companies once again reported the highest impacts seen since 2015 – with 35 companies quantifying a total loss of $6.79 billion.

Conversely, North American corporations continued to see low negative FX impacts to earnings, reporting $1.04 billion in losses. Additionally, as the number of quantified impacts remains low, so does the number of companies reporting headwinds, with Q4 2017 having the lowest number of companies not only reporting impacts, but also quantifying, in recent years.

Generally, as we see larger impacts more companies are quantifying those impacts out of a need to explain losses during earnings calls or to address volatile currency movements. Likewise, when impacts to earnings are low, fewer companies report or quantify those impacts – often times they might not even know the extent of their impacts due to a lack of insight into currency exposures.

What Currencies are Impacting Companies?

 

Generally one of the most impactful currencies, the euro was referenced by North American companies the most. In many cases, companies will be hit by movements in currencies that they do the most business in, but coincidentally those are also the currencies that they are best protected against. Even more surprising are the currencies that companies do not have insight into the FX exposure of – even small movements in those less protected currencies can have great impacts. In many cases, corporations negatively affected by such currency moves are either not hedging against those smaller currencies or covering their entire basket of currencies since they don’t expect impacts to come from there. Without access to the accurate, complete and timely exposure data that they need, companies are often left blind to large exposures and only learn about them once the damage is done.

For the first time in 2017, the U.S. dollar was most mentioned as being impactful to European companies. The push to weaken the USD and the United States’ proposed tariffs that arose and the end of the year caused some fluctuation in the dollar, and also led to some uncertainty with USD as other nations looked to counter the impending tariffs.

The Most Impacted North American Industries

1. Electronic Instruments
2. Business Services
3. Medical Equipment & Supplies
4. Auto & Truck Parts
5. Biotechnology & Drugs

The Most Impacted European Industries

1. Chemical Manufacturing
2. Biotechnology & Drugs
3. Clothing & Apparel
4. Electronic Instruments & Controls
5. Misc. Capital Goods

The Bottom Line

The steep increase in negative FX impacts to European companies this quarter solidifies the continued importance for multinationals to manage their FX risk – better exposure management leads to less negative financial impact from currency fluctuations.

To learn more about how North American and European multinationals were impacted by FX, download the Q4 2017 Currency Impact Report.