Several topics emerged from this week’s International Treasurer editorial call. Among them a look at the possibility of a strong US dollar over the course of the next year or so and what companies should expect. Also, there is talk of possible new credit valuation adjustment requirements coming from Europe; finally should companies be preparing for a higher rate environment?

Dollar strength.
With headwinds continuing in Europe and a recovery in the US seeming to pick up speed, there is talk of the dollar strengthening in the coming year. This is good news for buyers of commodities as commodity prices drop when the dollar appreciates; it is also good for keeping inflation in check. However, the bad news is that US exports will drop because US manufactured products will become more expensive to foreign buyers and foreign derived net income will translate to less US Dollars in each successive quarter.

According to one theory, the dollar could be on the verge of a significant 1980s-style upturn, which makes for a significant inflection point to increase hedges of USD.

Rate rise?
Along with strength in the dollar, treasurers may in the near future have to deal with rising rates. Many companies have parked a portion of their abundant cash in fixed income and may be concerned about the impact of rising rates. However, as net debtors MNCs are far more concerned about the cost to refinance bond issues at some point in the next few years, and how to hedge that risk.

Overall, the consensus is that the Federal Reserve is unlikely to raise rates before 2014, when the unemployment rate is anticipated to fall to the 6.5 percent threshold Fed Chairman Ben Bernanke has set. But strong economic growth or other unexpected factors could prompt the Fed to accelerate that plan, and recent reports about major institutional investors taking measures to mitigate rising-rate risk suggest concerns are building.

Interco lending.
The Wall Street Journal recently published two corporate tax-related articles on the same day that are at somewhat cross purposes. The first, “How Firms Tap Overseas Cash,” highlighted the practice of MNCs using intercompany loans to fund on-shore activities from off-shore without triggering a tax event. The second, “Big Business Spars Over Rewriting Tax Code,” reported on the battle-lines between domestic-focused firms’ tax reform agenda (represented by the RATE coalition) and that of cash-rich firms seeking to protect off-shore cash from taxation (LIFT), which was discussed at last November’s NeuGroup Tech20 peer group meeting.

The two articles underscore the continuing scrutiny and the apparent “free pass” that many see US corporates getting when it comes to taxation. Nor does it help the plight of cash-rich tech companies.