Treasury Insights 2019: Currency Analytics and FX Budgeting


Treasury departments have an opportunity now to prepare for 2019 with some key lessons learned from looking back at 2018 currency movements and wider economic developments. In this article, we focus on six separate focus areas to help your treasury department hit the ground running in 2019 with a value-added foreign exchange and currency analytics strategy in place.

Looking back at 2018: Currency Market Lessons

While the most liquid currencies, primarily the majors, have naturally seen marginal volatility, their emerging market counterparts have had a bumpy year. The 50% fall in value of the Turkish lira (TRY) against the U.S. dollar (USD) sent tremors across global currency markets, with a domino effect hitting the South African rand, Indian rupee, and Argentinian peso among other currencies. Signaling how contagion can quickly rise, Germany Chancellor Angela Merkel warned of a spillover into the European Union should Turkey be unable to repay its debts to Spanish and Italian banks.

The other big development spooking the currency market in 2018 has been the escalating trade war playing out mainly between the U.S. and China, and its adverse impact on countries caught in the crossfire, such as those whose economies rely heavily on trade with the latter, including Australia, Malaysia, and Singapore.

1. Straightforward aggregation of FX exposure

A renewed assessment of your organization's foreign currency exposure should form part of your review as you close out this year. This can be done by collating all accounts payable and accounts receivable for each of your overseas markets, calculating volumes in each currency, and analyzing which company divisions and assets are specifically exposed.

Look at how currency market movements in 2018 affected your exposure, whether for better or worse.

It can be more insightful by also looking at how currency market movements in 2018 affected your exposure, whether for better or worse. Heading into 2019, accurate FX exposure aggregation will inform your entire currency management strategy. The impact on your exposure from unexpected events in currency markets in 2018 may also influence your organization's risk tolerance and hedging approach in 2019.

2. Accurate, reliable, and timely FX data

Informed corporate currency management decisions are based on precise, reliable, real-time data that comprehensively covers global currency markets in minute detail.

Enterprises that achieve the strongest FX risk exposure management and offset currency movement losses use a reputable, proven exchange rates API to automatically update their foreign exchange data as a core component of their overarching FX management process.

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3. Upgrading to premier data automation processes

"Fat-finger" mistakes might be the exception to the rule, but they do invariably occur from time to time, even with preventative measures in place such as the four eyes principle. From a reliance on spreadsheets to calculations and data entry, manual processes are time-consuming, costly, and create unnecessary risk of error.

If you haven't already, make 2019 the year for streamlined data processes by harnessing the advantages that automation and cloud technology offer.

4. Integrating a comprehensive FX risk solutions

Centralizing your foreign exchange needs under one all-encompassing FX risk solutions umbrella ensures that your department is prepared for FX volatility.

Rather than rely on various service providers, centralizing your foreign exchange needs under one all-encompassing FX risk solution umbrella ensures that your department is prepared for FX volatility, while taking the hassle and inconvenience out of liaising with various third party providers.

A comprehensive solution provides you with automation tools: fast, fee-free cross-border payments to all corners of the globe; access to major, minor and exotic currencies; a range of hedging tools; and multi-currency accounts, among other features.

5. Hedging your risk naturally and with products

Your company can reduce FX exposure with "natural hedges" like netting, the use of futures contracts, or even increasing operations in the markets where you do business. Beyond these tactics though, organizations must assess and implement a robust hedging process.

Developing a strategy that ensures any transactions do not fall below your minimum acceptable exchange rates and seeks to maximize inter-currency outcomes across the board does not have to be complicated. Finding the balance between locking in FX rates for a given period on a specific percentage of your total currency exposures and spot trades is critical to your profit margins and ensuring that a competitor does not benefit from more favorable exchange rate movements. Financial instruments including forward and options contracts offer effective, diverse possibilities to support your decision-making.

6. Multi-currency exposure accounting and financial reporting

The aforementioned need for gold-standard FX data and upgrading to premier FX automation processes also supports your department's accounting and financial reporting by providing efficient, accurate records and diagnostics of FX data in all your exposed currencies in a comprehensive manner.

Accounting obligations for foreign currencies can necessitate a myriad of needs, chief among them defining a suitable translation method. Industry standard tools, such as historical currency converters, can function as invaluable resources in ensuring historical exchange rates, value disclosures, and more as part of your overall accounting and financial reporting methods.

Wrapping up

The global events that shook currency markets and corporate FX management efforts in 2018 provide a stark reminder of how easily markets move. In a more volatile international political-economic landscape, global companies can ill afford a misstep with FX management. 

Thankfully, the advances in foreign exchange technology, including automation and cloud technology, offer your organization a value-added, comprehensive solution to the most complex of corporate FX needs, providing the foundation upon which to build a watertight currency analytics and FX budgeting strategy for 2019.