Managing Corporate Currency Risk: Lessons from Across the Organization

Photo: Global Trade Review

Photo: Global Trade Review

For companies, managing FX risk in a volatile marketplace is truly a team effort—one that requires effective collaboration across all levels of the organization. In a new blog series, Natasha Lala, Managing Director at OANDA Solutions for Business, looks at key FX considerations and best practices across different teams and departments--from senior management to the many specialists working beyond the C-Suite.

As we enter into Q3, companies continue to struggle with ongoing uncertainty about their currency exposures. FX markets have been choppy for well over a year now, and that scenario is unlikely to change anytime soon—thanks to events like Brexit, recent troubles in Turkey, central bank interventionism, turbulence in commodities and worries over global economic growth prospects.

Amid heightened volatility in global currency markets, companies involved in multi-currency transactions need to be extremely diligent about how they manage their exchange rate exposure.  A sudden, unexpected market swing can have a major hit on a corporate balance sheet. Capable FX management involves much more than simply hedging against risk; in order to take the appropriate course of action, all levels of the organization need to be informed and involved—from the highest levels of corporate governance down.

CEOs and Boards, for example, while not actively involved in the day-to-day actions of managing currency exposure, need to be aware of business risks broadly. This includes being savvy about any potential operational turbulence that FX rates may pose to their business and working with their financial officers to develop and implement strategic policy actions as needed.

For CFOs and their teams, FX management is an issue approached with a greater level of granularity. They must understand the specific financial risks associated with FX volatility and help enact specific strategies (i.e. hedging, cost-containment) in tandem with their risk management and other departments.

As the department in charge of managing the company’s cash, collateral and other liquid assets, corporate treasury and cash management teams are the ones that need to keep the most vigilant eye on daily market movements. Among many other duties, they are the ones most responsible for maintaining the value of the firm’s physical cash, which can erode quickly in the face of an unexpected fluctuation in global exchange rates. They must work closely with other departments to understand FX risk and follow courses of action that protect the organization’s cash flows.

There are many other parties responsible for effective management of FX rates within an organization. The efforts of accountants, forecasters, analysts, technology officers and scores of others are invaluable in helping a business oversee its currency exposures. In coming weeks, we look forward to examining in greater detail the issues that are unique to these various departments, discussing a bit further some of the strategies and practices that may be put into place at different points along the chain of command.