A year on from the SNB’s surprise decision to uncap the Swiss franc, Natasha Lala of OANDA Solutions for Business explains what steps corporate treasury departments have taken since the crisis to manage future volatility shocks.
This blog post has been featured on GT News: Switzerland’s Francogeddon: lessons learned one year on.
They say anniversaries are a good time to reflect on what’s happened and discuss the future. For corporate treasurers, the SNB saga is no exception. It seems hard to fathom now, but in the midst of the market mayhem on that now infamous Thursday, many corporate treasury teams felt underprepared to manage risk.
It’s easy to see why, it’s not every day an event of such magnitude and suddenness occurs. As the Swiss franc shot up 30 per cent against the euro, corporate treasurers had some pressing concerns. At the time, these ranged from understanding their risk profile, to finding out their exact market position. Unfortunately, the struggle to access accurate pricing information quickly on the day, left many scratching their heads for answers.
This was due to the fact that initially, many firms were in the dark about the quality of the rates provided and where they came from. As we know, accessing Foreign Exchange rates should be easy – getting hold of the good ones is the tricky bit. Many global corporates, understandably, aren’t able to distinguish the difference between informative rates and ones they can transact on. On top of this, certain firms used spreadsheets to manage their risk. The problem is that this involves the cutting and pasting of data – which can lead to errors and less accurate and timely prices. All this highlighted the need to automate data feeds for FX rates – a step that many treasurers have already taken.
The challenge, a year on, isn’t so much one of accessing and automating the best rates – it’s one of how to make the most out of the information available. A case in point is from a monitoring perspective; it is no longer good enough to look at single currency, like the Swiss franc, in isolation. Treasurers, financial controllers and CFOs alike now have to look at multiple currency pairs and any moves that that could affect their value – including central bank interest rate rises and falling oil prices. By looking at the raw data that supports any possible currency swing, and assessing what the next step should be, the treasury department can really come into its own. However, it may not always be a case of deciding which transaction to make from a hedging or risk management perspective, but more how to spread the data across the business to ensure the right people can act upon it.
There has been no shortage of events to keep corporate treasurers busy since SNB – China’s devaluation of the Yuan last August immediately springs to mind. It will certainly be interesting to see how far attitudes towards manging risk have progressed come the anniversary of this event. We have seen a greater demand from treasurers to monitor risk before it occurs, and the SNB certainly reinforced the importance of not waiting until tomorrow to report on exposure. For those treasurers that haven’t done so already, it’s high time to take a proactive rather than reactive approach to these events. After all, as the market witnessed this time last year, there’s no telling when or where the next volatility shock is likely to come from.