More than half of corporate treasurers do not distinguish between emerging and developing markets within their FX hedging strategies, according to a new Citi report.
Plus, a majority of treasurers surveyed for the Citi paper admitted that their treasury management systems do not currently support financial risk management processes.
That’s despite a growing awareness among corporates of how technology can play a vital role in helping them meet their risk management objectives.
Published on 2 March, the report – Managing FX Risk in Turbulent Times – notes that methodologies “vary significantly by region”, particularly in terms of the objectives that corporates use to gauge when and how to hedge risks.
It also notes that:
In the best cases, though, FX risk management policies are broadening in scope to include more strategic and tactical approaches – for example, assessing the impact of FX on indicators such as net debt to EBITDA.
“This suggests that other considerations – such as the potential for derivative profit and loss volatility, or the reluctance to hedge non-cash items, for instance – have taken precedence over the desire to reduce FX volatility in earnings,” says the report.
Citi global head of FX risk management solutions Sam Hewson commented: “Many corporates are aware that they need to deploy a different approach between developed and emerging markets.
“However, their current FX policy remains virtually the same.”
He added: “The challenges in identifying and hedging FX risk have always been around – but as companies continue to further deploy their balance sheets to the emerging markets, corporates need to consider differentiating their currency strategies.”