Insight to All Things Currency and Treasury Management

In the last year, I have had the opportunity to discuss currency risk management with board members, CEOs, CFOs and treasury executives across the U.S., Europe and Asia.

Regardless of the location, there were three consistent concerns I heard mentioned again and again. Not only were these items voiced repeatedly, but increasingly I saw executives acting on these concerns in 2017 – making them the biggest treasury trends of the year.

What follows is a breakdown of the most predominant FX trends of 2017:

1) The Move Towards Automation


Currency risk management – like nearly every other function in the corporate ecosystem – continues to improve thanks to advancements in technology.

In the 2017 Deloitte Treasury Survey, corporate treasury respondents identified “managing FX” as their biggest strategic challenge.  Yet, a separate study found only 52 percent of global corporate risk professionals leverage technology to manage risk. This is a significant disconnect and it has not been lost on corporate leaders; 25 percent of those organizations not currently using technology say they are in the market for high-tech solutions.

That leaves roughly 20 percent that insist they can manage risk using internal tools – or they have no interest in leveraging technology to manage risk.

This should not come as a surprise. Every trend is bookended by “early adopters” and “laggards.”

However, in the case of managing foreign exchange (FX) risk, even laggards must now admit there is too much at stake to leave FX exposures to chance. In Q2 of this year alone, North American multinationals lost more than $7 billion due to currency impacts and in reported cases, an average of 4 cents earnings per share (EPS).

Losses such as these are forcing decision makers to make FX a priority, which is why automating FX is one of the year’s top trends.

2) A Lack of FX Analytics is Leaving Corporations Vulnerable


But automation alone does not ensure a fully optimized FX program. This brings us to the second predominant trend of 2017: The demand for analytics.

The assumption might be that treasurers are fully leveraging analytics, but Deloitte found just the opposite to be true. Their research shows 75 percent of organizations are not using analytics to “monitor key risks.” As a result, Deloitte said, “there is significant opportunity for treasurers to invest in technology to deliver more sophisticated real-time analytics.”

If only a quarter of organizations are leveraging analytics, it means for most, analytics remain a missing ingredient in their FX risk management programs.

This is likely due to a misunderstanding among many C-levels as to exactly what a TMS and an ERP can do and what they cannot do. At a high level, ERPs were created to help companies to keep the books. Similarly, the average TMS serves as a catcher’s mitt, capturing and tracking data to manage liquidity. Neither system was created to harvest or analyze data.

Executives are beginning to recognize this. And – given the ease of implementing a currency analytics program and the significant ROI that analytics deliver – this is why the demand for currency analytics emerged as a top trend in 2017.

3) Companies Continue to Become “Currency Aware”


The final trend is really the latest wave of a trend that has been in the works for years.

As I said earlier, every trend is bookended by early adopters and laggards.

When it comes to multinationals becoming “currency aware,” the early adopters – companies such as Google, Pfizer, Accenture and Ericsson – were treating FX management as a priority a decade ago. They recognized early on how currency volatility can impact a corporation’s earnings per share (EPS) and its earnings before interest, taxes, depreciation and amortization (EBITDA).

But, a decade later, Wells Fargo still found 36 percent of companies have no formal policy to address FX risks. (Deloitte’s latest research had similar findings:  37 percent of companies surveyed said FX risk and exposures were not reported to senior management or the board of directors.)

This means one of two scenarios are playing out: Either these organizations have no material FX exposures, or they are lagging in the currency awareness curve.

If they are laggards, it is a position that is not sustainable. Increasingly, shareholders are uneasy with boards of directors or CFOs that fail to treat FX risk as a priority.

Fortunately, the numbers suggest most executives are seeing the need to treat currency risk management as a priority. In 2016, companies around the globe lost more than $10 billion due to currency impacts. As mentioned earlier, more recent losses hover around $7 billion.

Slowly – but surely – corporations are becoming currency aware – and shareholders are welcoming this development.

As corporations continue to embrace automation, analytics and an overall focus on managing FX, these trends should help position companies to better withstand headwinds in the coming year.

Next Steps

FiREapps has been helping leading multinationals leverage analytics and automate their FX programs for nearly two decades. If your organization is committed to enhancing its currency risk management program in 2018, contact FiREapps now to find out how we can optimize your FX program, improve efficiencies and reduce risk.