Lack of Visibility the Top Challenge for CFOs as FX Market Uncertainty Bites

Published: October 06, 2023

• New report shows over half of all CFOs lack adequate visibility of their FX exposures.
• Almost half (48%) find it a drain on resources to manage multiple suppliers, with nearly 90% using 2 or more FX providers.
• Only half of all CFOs (53%) stress test their business’ FX exposure
• Nearly half (47%) of all CFOs surveyed do not undertake any FX scenario modelling.

With currency shifts continuing to significantly impact company profits, more than half (51%) of respondents to the 2023 inaugural Argentex CFO survey reported that the biggest challenge in managing FX risk is a lack of visibility against a backdrop of ongoing market volatility.

The survey polled over 500 CFOs, Treasurers and Financial Controllers across the UK, France, Spain, Canada and Australia, from businesses with more than £1m foreign currency exposure per year, on the challenges they face in managing currency risk.

The lack of visibility, which the survey found to be a critical challenge for respondents, could derive from the fact that nearly 9 out of 10 (89%) of corporations rely on at least two to three different sources to monitor exposures, with around half (48%) admitting they find it a drain on resources to manage various suppliers. In addition, the survey found that crucial measures, such as stress testing FX exposure, are undertaken by only 53% of the respondents while nearly half (47%) do not undertake any kind of scenario modelling.

As a consequence, almost two thirds (62%) of respondents had to report unbudgeted currency impact on their balance sheet during the their last accounting period. This suggests that the ability of financial professionals to effectively manage currency risk continues to be tested, as concerns over central bank divergence and recession risks remain on the horizon.

With respect to hedging strategies, the survey found that the majority of corporations (93%) have a hedging policy in place and deploy more than one instrument when managing their currency exposure to create more certainty. This entails using a blend of forwards (55%), options (40%) and spot (47%) to allow flexibility whilst also providing an amount of protection against adverse market moves.

Commenting on the findings, Lee McDarby, Chief Commercial Officer, at Argentex said:

“For most CFOs, Treasurers and finance teams, mitigation against currency market risk is not a major priority and is often seen as ‘noise’ and a distraction from bigger issues – until it goes wrong. With economic changes, such as continued high inflation and further interest rate rises on the horizon, CFOs and Treasurers need to prioritise optimising their FX risk management systems in order to deliver sustainable growth and protect their company’s bottom line.

“This should include defining the right hedging strategy for your business well ahead of time and partnering with the right specialists who are best placed to help you to navigate the markets and discuss when and how to use which products. All in all, this should give CFOs their desired certainty and peace-of-mind that sudden moves in currency markets shouldn’t significantly impact their balance sheets.”