Managing currency-related risks is a growing concern for many corporates, given significant foreign exchange (FX) volatility. Nevertheless, an optimal hedging strategy should always be tailored around the business, rather than the market, says Toni Rami, Co-founder and Chief Growth Officer, Kantox. Here, he explains how treasurers can implement a dynamic FX risk management strategy, automate FX-related workflows, and gain a competitive edge – even in the most challenging of operating environments.
As the Covid-19 pandemic has impacted global financial markets, many organisations have seen drastic changes in their business flows, relative to forecasts, and discovered failings in their FX risk management strategies. The importance of implementing an efficient and tailored FX hedging programme has never been clearer – it can mean the difference between profit, loss, and even bankruptcy.
Rami explains: “Covid-19 caught the world off-guard. Treasurers and CFOs suddenly found themselves working from home, battling the most significant market turbulence since the global financial crisis of 2007/8, and trying to gain visibility over their FX exposures and hedges. Companies without a streamlined FX workflow in place were scrambling to pull data together remotely, often from different systems.”
Alongside the headache of achieving visibility in such a manual way, many decision-makers have been left questioning the accuracy, timeliness and reliability of the data received, says Rami. “Often, it is unclear what is a forecast and what is committed – this is a common complaint among treasury professionals, even in a typical working environment. This lack of clarity, combined with the deviations from forecasts, means that over-hedging is becoming a very real risk.”
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