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Insight to All Things Currency and Treasury Management

We all know by now that Europe is in a deep and convoluted financial mess and the future of the euro is clearly in doubt. This is truly a crucial and serious time for Europeans. Why should you care?

The answer is because this is actually a crucial and serious time for you as well. If you take time right now to truly understand and become prepared for the financial implications of this European tailspin, you will be able to handle what is most likely on the horizon with the euro.

Why the rush now? There are two reasons: 1) Because, based on current consensus, the breakup of the euro is likely to happen anytime between June 30th and January 1, 2013, and 2) because when the euro dismantles, it will happen immediately/overnight. So, at that point, you will either be prepared for the FX exposures or you will not.

So you need to get prepared now. Because the morning after the euro breakup, you are likely to encounter these types of questions:

Do we have FX exposure i.e. German deutsche mark vs. French franc, or Italian lira vs. Dutch gilder?

What are we doing with our cash?

How and in what denomination are we settling accounts receivable and accounts payable?

In what denominations should we do liquidity financing?

What do our new revenue and expense forecasts look like given the new denominations?

What is our new cost of capital and subsequent IRR?

These are questions that will be asked in the future – given your current capabilities – will you be able to answer them accurately and immediately? Obviously, it’s not just the cost of capital, but the operational and financial statement implications that you need to be concerned with and have the answers for.

Now is the time to understand the true origins of your euro exposures from all angles, so you will not be caught off-guard. In the current environment, accuracy, timeliness and transparency are being mandated, and will be the differentiator between those who are prepared and those who are not.

Just look at Jamie Dimon, who only a year ago looked like the “golden boy” of banking. He is now being seen as a bad risk manager after he explained that he did not have accurate and timely exposure definitions, which have lead to bad decisions.

— Wolfgang Koester

Wolfgang Koester is the CEO of FiREapps, the leading provider of foreign currency exposure management software, based in Scottsdale, AZ. He has managed risk for Fortune 100 companies as well as governments, including G-10s, since 1986. To learn more about FiREapps, go to www.fireapps.com.