FX managers seek a simple but comprehensive measure of the value they create.
Foreign exchange managers have had a rough couple of years. Volatilities in many cross pairs have spiked, the cost of hedging has risen and forecasting has become more difficult. Those who have steered their companies away from big FX losses deserve resources and recognition—but are often hampered by the lack of an easily understood yet comprehensive performance measure they can show their boards.
Senior management typically prefers a one-number approach, but it is nearly impossible to distill all the relevant information down that far. The factors involved are complex—the company’s FX forecasts, its hedge ratios, variations in the prices of hedging instruments, and so on—and often require more granular reports. That’s especially true since the same ostensible results in two different time periods might reflect vastly different market conditions and hedging activity.
The lack of easily digestible performance measures can make it difficult for FX managers to quantify for senior management just how much value their teams add. In an attempt to solve this problem, and determine just what current best practices are, members of The NeuGroup’s two FX Managers’ Peer Groups have recently launched the second part of their World Class FX project, which will investigate these issues as well as accounting and risk analysis topics. (See “World-Class FX Management,” International Treasurer, October 2009, for the results of the first part of the project.) The results of the second will be published next year.