It’s the end of the quarter, and you need to close the books in a few days. While you were hoping for a nice offset between your underlying balance sheet exposure and the hedges you put in place, unfortunately, it didn’t turn out that way. There is a large net FX loss that needs explaining, and the CFO (who really doesn’t want to miss an earnings forecast because of FX volatility) wants answers yesterday.
If you are tasked with managing your company’s foreign exchange risk, this may sound all too familiar. Trying to get to the bottom of this problem without the right tools is like trying to find a needle in a haystack. How can you expect to accurately forecast your future balance sheet exposure and quickly explain your hedging results when you can’t even pull your existing FX exposures from your ERP system?
While I would not recommend using your existing balance sheet exposure as a proxy for your future exposure, extracting the relevant FX data from your ERP system is a critical first step in developing an accurate forecast. Unfortunately, the out-of-the-box ERP reports don’t provide the information you need. Fortunately, there are fairly simple scripts that can be written to extract the relevant data.
Wait a second – writing scripts? That sounds complicated and painful, you say? Your IT group is fully booked with major projects through 2015? Have no fear. Getting the right info from your ERP system(s) is pretty straightforward. Companies today are leveraging new Software-as-a-Service applications that do not require a significant investment of time or resources from your IT department to implement because of how they are designed and because of the expert service that accompanies them. You will easily be able to gain the capabilities for identifying and extracting FX exposures, and then be able to focus your time on the deeper analytics that can help you turn that data into more accurate forecasted exposures.