One of the ongoing challenges for FX teams is to get the information it needs from the rest of the organization to be able to perform effective risk mitigation and hedging. When such information gathering is subpar, it is often because people out in the business lack a solid understanding of the nature and potentially costly implications of bad or late forecasts or neglected communication of critical events that affect FX exposures. This was a recent takeaway from The NeuGroup’s meeting of the first of its FX Managers’ Peer Group (FXMPG), which took place in September.
FX management is hard enough to communicate in terms of how it works and the benefits it provides the company; if significant changes are made, an educational effort is required for them to have the desired long-term effect. According to FXMPG meeting participants, those with the best risk-management outcomes often spend significant time educating their counterparts in the business to bridge this knowledge gap. Any new approach needs to be thoroughly understood in the organization.
One treasury department at a global auto manufacturer engages with business leaders directly by way of an international roadshow aimed at improving risk management of foreign currency exposures. The FX manager felt that this helps facilitate better understanding and improved collaboration with business partners outside of treasury and financial planning.
Additionally, FX teams should promote understanding of short-term protection versus long-term risk mitigation through strategic business decision making. While hedging can mitigate shorter-term risks, longer-term risk can be mitigated with longer-horizon strategic decisions — based on better understanding and transparency of foreign exchange exposures, and improved corporate reporting and analysis — that reduce or eliminate FX exposures.