How to Efficiently Manage Enterprise-wide FX Risks in Mid-Market Companies

As mid-market companies start seeking revenues outside their domestic markets, they are increasingly exposed to FX risk. Treasurers are challenged to set up a risk framework and find tools to help them control currency volatility.

In a recent Reval survey, 37% of about 150 finance professionals working in companies with less than 1 billion revenues said their treasury teams will become more international over the next 3 years. As mid-market companies start operating in foreign markets, they are increasingly exposed to FX volatility. This is particularly challenging in emerging markets, where currency pairs tend to swing even higher.

As the turmoil in FX markets continues, corporate treasuries in the world´s leading companies review their risk guidelines and adapt their hedge accounting programs. However, most mid-market companies don´t have a risk framework. Treasurers are tasked to define risk strategies and guidelines from scratch.

Developing a solid framework enables enterprise-wide risk management. Typically, risk guidelines cover the following areas:

  • Risk factors: Which risk factors have to be considered by each business unit, and on an enterprise level?
  • Risk processes: How should risk be valuated and hedged?
  • Risk reporting: How and how often should exposures be analyzed and reported on?

Automate and Analyze

When building a risk framework, it is important to define risk guidelines and implement processes efficiently. Spreadsheets are widely spread in mid-market treasuries, but these simple tools suffer severe limitations. Here are three factors that make FX exposure management with Excel inefficient and insecure:

  • Fat finger errors: Cash flows need to be keyed in manually, often twice or even more often.
  • Broken formulas: Market data cannot be imported and valuations have to be calculated with formulas.
  • No audit trails: Data changes are not documented.

Treasury systems are better suited to efficiently manage FX risks. The software captures all cash flows in a single platform. Transactions are valuated automatically with current FX and interest rate data feeds. This makes it easy to identify and mitigate FX exposures. Finally, risk reports can be created automatically at any time, providing real-time information for the CFO.

As uncertainty continues in global market, foreign exchange risk management is becoming a priority, particularly in many mid-market companies. Treasurers start implementing company-wide risk guidelines and treasury software to get on top of FX exposures.

Find out how to efficiently manage FX risks in our White Paper "How to Align Growth, FX Risk Management and Technology".