Corporations are exploring new horizons in our interconnected global economy, seeking growth and opportunities beyond domestic borders. Yet, this expansion unfailingly exposes them to the intricate realm of foreign exchange (FX) risks, elevating the imperative of proficient FX risk management.
The role of the treasury is becoming increasingly strategic (part of the executive committee). Corporate treasurers bear the weight of responsibility at the helm of this financial stewardship. Their role, while well versed, requires a continual adaptation to the ever-evolving FX landscape.
Within the FX domain, a symphony of economic indicators, policies, technological advancements, and geopolitical events orchestrates the market's fluctuations. Recent pivotal moments, such as the 2008 financial crisis, the complex narrative of Brexit, the global challenges posed by the COVID-19 pandemic, and ongoing geopolitical intricacies, attest to the market's dynamism.
The overall growth in international trade has highlighted the need for corporations and institutions to manage their currency risk better and have access to liquidity and deliverable FX.
Providers other than banks, such as FX Prime Brokers (FXPBs) like StoneX Pro, help clients price this volatility by providing broad access to liquidity through wholesale market solutions. StoneX Pro’s clients evaluate suitable FXPBs by considering several different factors – reputation and experience, pricing, service levels, technology, risk management, geographic coverage, and regulatory and compliance requirements. StoneX firmly believes that to be considered by clients, leading FXPBs must demonstrate excellence in each category.
At StoneX Pro, we see a significant increase in demand for FX trading services across our global network due to market volatility and economic factors, such as the increase in interest rates, which propel the need for FX hedging. This environment, while driving activity, also creates more challenges, particularly for emerging market pairs or non-spot products. This is where professionally managed liquidity procurement, in addition to credit intermediation, e-services including state-of-the-art APIs, plays a valuable role.
From a broad perspective, what is essential for corporate treasurers when considering foreign exchange management? Transactional exposure, such as protecting profit margins and financial stability, efficient cash management, financial reporting (translational risk), debt management and capital structure, facilitating global M&A and regulatory compliance, and stakeholder confidence. StoneX believes that corporate treasurers see foreign exchange management as a strategic tool in the corporate arsenal of risk management tools.
It is more important than ever that corporations with foreign exchange exposure know their liquidity providers’ reputation and experience, as corporations must recognise FX risks in today's dynamic global economy. FX management remains a cornerstone of corporate financial strategy, enabling companies to navigate international markets with stability, foresight, and agility.
Effective foreign exchange risk management is key for safeguarding profits, creating stable cash flows and enabling strategic global expansion. Corporate treasurers are crucial in this effort, helping organisations thrive in an ever-changing FX landscape.
In today’s dynamic global economy, ignoring foreign exchange risks is not an option for corporates.
Thomas Friesleben is managing director of StoneX Pro EMEA
