As volatile markets and regulation have heightened risk and tightened liquidity for global corporations, effective management of treasury and risk has become a determining factor of success. To stay ahead of the curve, treasurers must be able to identify gaps or disconnects in workflow that can cloud the global view of their cash.
Gaining a holistic view of exposures begins with understanding that there is a cause-and-effect relationship between cash and risk management activities. Below are five key areas where cash and risk need to be considered together.
FX Exposures: In order to gain a holistic view of your global FX exposures, an organization needs to combine data on its global cash position, international cash pools, multi-currency positions, cash forecasts, balance sheet positions, forecasted FX exposures, and input and insights from subsidiaries. Investing in this effort to consolidate information can reduce P&L, lower transaction fees, and strengthen compliance with FX risk management policies.
Liquidity Management: Global development can impact working capital positions, payables and receivables. Lack of visibility into these positions could result in inefficiencies and expenses. If you are entering a new market, you need to understand the nuances of local governments, businesses and employees and how these characteristics might impact your liquidity management.
Cash Forecasting: Inaccurate cash forecasts can undermine your company’s liquidity management.
Counterparty Risk: Risks associated with global banking partners has shifted dramatically over the past few years. The number of international banks used by companies has been increasing, requiring a comprehensive view into their accounts. Consolidating data across exposures and asset classes creates a holistic view of your counterparty risk, reducing the impact of any financial loss while saving time and resources.
Commodity Risk: Hedging in a global company is a daily activity. Improving collaboration between procurement and treasury improves your ability to measure commodity risk and implement best practices for hedging.
Due to the interconnectivity of the global economy, coupled with the inherent shift in economic growth, few treasury functions are isolated from each other. There is no magic recipe to protect against every potential risk; a corporation that knows its risk profile and works to manage it by creating a holistic view of treasury and risk will be better prepared to make sound strategic decisions. To learn more listen to a recent webinar about the Impacts of Globalization on Treasury.