Global corporations lack visibility into foreign exchange (FX) exposures and reliable forecasts and have labelled this as their biggest FX risk challenge, according to a Deloitte survey.
The survey found corporate treasurers were also challenged by different expectations around interest rate policies, quantitative easing removals, de-pegging of some currencies, and various actions by global economies.
Deloitte treasury and capital markets lead partner, Steven Cunico, said “if you can’t see it, you can’t manage it. Without accurate measurement, value erosion from negative currency rate movements can’t be anticipated or prevented”.
“The challenges in reporting on FX risk have always been around, but as companies become ever more international, and a period of relative calm in the FX markets has turned unsettled, this will have an even greater impact,” Cunico said.
More than one-in-five (21 per cent) of the survey’s respondents said they did not track FX risk management performance at all.
Deloitte foreign currency risk management partner in assurance and advisory practice, Hussein Hussein, said a lack of automation was a significant challenge in identifying FX exposures.
“Sixty two per cent of survey respondents indicate they use manual forecasts. And our survey shows a direct correlation between levels of automation and forecast confidence,” he said.
“The chances are you will hedge less if you don’t believe the forecasts. Manual information and processes cause late and unreliable forecasts. In fact, inaccurate forecasts, poor communication on changes in the forecasts, and non-transparent exposures, make up the top-three sources of ineffectiveness in managing FX risk.”
More than half of the respondents (63 per cent) felt that the board and executives received sufficient information on FX exposure and risk management. However, 41 per cent reported tracking impact on gross margin and other profitability measures such as earnings per share impact.
