A tricky time for Turkey – so how should treasury and finance depts. exposed to the Lira respond?

With Turkey and Russia’s economic relationship on a knife edge, Natasha Lala of OANDA Solutions for Business explores how corporate treasurers exposed to the Turkish Lira can best manage their business through the hostility.

It never ceases to amaze how quickly global events change markets. Last year, the prospects for Turkey’s economy appeared rosy. The election brought about stability to the Lira and the plummeting price of oil boosted Turkish businesses reliant on foreign fuel.

However, recently the Turkish Lira has found itself on the wrong side of a geographical see-saw. Increasing tension with Russia, the result of a stray Russian fighter jet being brought down on the edge of Syria sent the Lira into free fall as panicked investors sold the currency at the prospect of conflict. And, while Turkey’s tension with its neighbour had negative consequences – its reliance on a not-so-close nation, the US, also affected its economy. Turkey held out for the ever-impending, yet oft-delayed US interest rate increase, at the detriment of the Lira. Geopolitical tensions, combined with a general downturn in enthusiasm for emerging markets, left the currency in disarray.

This mixed bag of post election good fortune and geographical uncertainty left many corporate treasurers exposed to the Lira feeling the tension. With Turkey’s currency subject to such factors, how should corporate treasurers protect themselves? Before answering this question, a corporate treasurer must be wary that the Turkish economy is itself exposed to future external factors which push and pull its currency – including any further moves from the Fed around interest rate increases.

With this in mind, a treasurer, CFO or financial director must do as much as possible with data – particularly if they trade with an economy that is susceptible to global pressure. For example, if a treasurer is exposed to the Turkish Lira, they must also be aware of movements to the US Dollar, the Russian Ruble, not to mention the price of oil and broader socio-political factors. Possessing and making use of a wide data pool is essential to understanding these issues.

Receiving access to the best rates is also important. A treasurer should look to acquire a broad range of prices. This will allow them to have a more holistic view of not only the Turkish Lira, but the currencies and commodities which affect the Turkish economy. If a firm relies on a single bank’s rate – it could be leaving itself unnecessarily susceptible to fluctuations. Coupled with this, treasurers also need to ensure that they have automated data feeds for FX rates, so that they can be confident they have the most accurate prices.

Turkey’s economy is the perfect example of the importance of access to more information. When exposed to the Turkish Lira, treasurers do not need to know just one set of prices. Instead, they have to be aware of the rates for a number of currencies in order to truly protect themselves. If they fail to do so, they could just find themselves on the wrong side of even the smallest ripples from the splash of a foreign pond.