July 09, 2012
The Shadow of Uncertainty Stretches Farther
FX Groups Discuss Challenges Amid Uncertainty
When members of The NeuGroup’s two FX Managers’ Groups (FXMPG1&2) met in March, the continuing ups and downs of the eurozone crisis served to highlight the importance of appropriate risk management action in several areas. Here is a sampling of what was discussed.
1) Revenue Hedging. Examples of member company hedging programs and the challenges they face.
Key Takeaway: Start with a simple view of the company and its aggregate exposures and consider and deal with complexities later.
2) Emerging Market FX Risk Management and Execution. Bank meeting sponsors took on Brazil, China and India.
Key Takeaway: Hedging Brazilian entity exposure onshore has tax benefits. In China, compare implied yields to choose on- vs. offshore hedging. Funding India subs via Mauritius is still tax advantaged, but this may disappear.
3) Counterparty Risk: ISDAs, CSAs, and Collateral Management. Several members shared their approaches.
Key Takeaway: Identify what is and isn’t negotiable in the ISDA; get senior backing to stand firm with counterparties. CDS spreads add nuance to counterparty analysis.
4) FX Reporting to Management. Members presented samples of their FX reports to management.
Key Takeaway: Tailoring the FX reporting to the various audiences is key to communicating positions and how they are managed.
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