Treasury teams must work closely with internal stakeholders to understand the true FX exposure. Depending on internal structures, business processes and operating controls, there can be a significant amount of underlying exposure that the organisation’s business model and supply chain may inherently create, so be aware and seek it out.
FX exposures can be better managed by treasury working closely with other teams such as sales, marketing and procurement. The currency of pricing and invoicing is not always the same, for example, invoices may be generated in GBP based on a prevailing exchange rate, and may obscure underlying FX risks. So check with the business and then check again.
Creating a cash-pooling structure can support the efficient management of FX exposure in a large or complex organisation. It can be a good broader risk management tool, enabling treasury to aggregate all the organisation’s surplus currency liquidity and working capital in one place.
Corporate structures can comprise a number of legal entities across different jurisdictions with varying regulatory obligations. By involving all legal entities in the development of the group’s FX treasury policy, treasury can take into consideration their concerns while managing the FX exposure and risk management for the group. This can help to get buy-in and maximise effectiveness at all levels across the organisation.
These rules-based, end-to-end products allow treasurers to set parameters for items such as the hedging of individual currencies and levels of exposure. This enables the treasury to be more efficient in managing FX exposure risk and can reduce the impact of FX volatility on the balance sheet and income performance.
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