From 1995: Five considerations for judging your company’s FX Risk.
In the early to mid-1990s companies were starting to get more serious about their FX exposures. But it was still an era when many MNCs were flying blind. As we wrote in 1995:
“While most multinational companies face foreign exchange risks, few understand all the considerations that need to be weighed in order to manage them effectively.”
With this in mind, we laid out, with the help of Greenwich Associates, five aspects to consider. They included:
- the materiality of the risks to the company’s P&L;
- the economic nature of the exposures;
- operational considerations;
- competitor considerations; and
- the company’s primary business objectives.
Companies have taken these considerations to heart, and today utilize their accumulated FX risk knowledge to help them in emerging markets, where challenges still require a somewhat different approach than managing FX risk in more mature markets; and also as part of the multiple risks considered when companies are plying for business around the world (along with convertibility considerations, expropriation, counterparty risks, inflation risks, tax risk. Technology has also played a big role as these risks have grown. Tech has allowed companies to improve timeliness, accuracy and controls and generally boost confidence in the FX exposure management program.