Back in 1994, treasuries were encouraged to improve their FX programs to make the company as a whole more competitive. As we wrote in 1994:
“What could help the competitiveness of US companies, at least versus the Japanese, is their FX management expertise. The ability for a US company to alter its exposure to currency movements has been greatly enhanced by US financial innovation, particularly with derivatives. However, only those companies that have devoted significant resources and management support to their treasury functions will have the sophistication to use derivatives and manage their foreign exchange risk effectively.”
Companies did get the message as did technology vendors looking to help. Technology has allowed them over the years to improve timeliness, accuracy and controls; enable cleaner and faster accounting closes, use more time to discuss qualitative issues surrounding exposure data; and boost confidence in the FX exposure management program. This means many shops have:
- Gained real-time visibility toward exposures and Value at Risk (VaR) at the entity and enterprise level.
- Increased the frequency of exposure management based on VaR.
- Lowered hedging costs by globally via organic exposure elimination and reduced transaction volume by aggregating exposures on a regional or corporate basis and hedging the net exposure externally with a financial institution.
- Reduced FX gain/loss volatility on a corporate and regional basis.