March 25, 2010
A roundup of issues International Treasurer is investigating.
The NeuGroup’s two FX manager peer groups have mostly finished their work to develop world-class best practices for foreign exchange management. Now for the hard part: implementation. Among the topics discussed by members of the two peer groups (see the upcoming April issue of International Treasurer for more information) were:
- Risk analysis: Members agreed that value-at-risk could be considered a world-class metric because it encompasses both the probability of losses occurring and their magnitude. However, while requiring that a world-class FX program incorporate a value-at-risk (or earnings, cash-flow, etc.) approach sounds right, it is important that the outcome of any risk analysis (i.e., a risk metric) is “actionable” in relation to the goals and policies of the hedge program.
- Performance measurement: As with risk metrics, performance measurement and metrics need to be closely tied to the goals and objectives of the hedge programs.
- Efficiency: The survey showed that most companies have very lean FX teams, and there is not a straight relationship whereby “one unit worth more of systems equals one unit less of people” or vice versa.
To generate world-class benchmarks in the cash management space, the Global Cash and Banking Group has launched a parallel project. At its meeting last week, the GCBG chose a steering committee to drive the project forward, and will be using the experience of the two FX groups to inform its own process.