The significance of FX risk management has increased greatly over recent years due to globalization, increased levels of market volatility, and new regulations. Therefore, treasurers are becoming more active in monitoring FX exposures, and refining policies more frequently. Companies of all sizes and industries are growing internationally, seeking new sales opportunities and expanding supply chains. As a result, treasurers are managing risks of increased proportions spanning multiple currencies which adds to the operational and financial complexity.
Market volatility is predominant due to economic fluctuations, supply chain disruption, and global geopolitics. The ability to gain timely, accurate, and complete visibility over FX risks and pursue more adaptable hedging solutions to tackle them has become a priority for treasurers today.
There are three types of foreign exchange risks that companies usually face such as:
FX risks can be managed using this standard risk management process:
Previously, the key to flexible, comprehensive risk management solutions may have been restricted to the biggest multinational corporations with the most sophisticated treasury management function. But today, treasuries of all sizes and levels of complexity are embracing the opportunity to visualize, model, and manage risks more effectively to add significant value to their organizations.
The first phase is to identify global exposures or risks, which is more difficult if treasury movements are decentralized. Therefore, many companies are choosing to centralize some or all financial risk management processes and direct exposure data from across the business into a global treasury center. With the information in a single location, treasury will be in a position to visualize these risks jointly with existing hedges. Treasurers can then revalue and observe the effectiveness of an existing or suggested hedging, against different market strategies.
The benefits of an automated FX hedging approach along with a broad risk reporting and modeling approach are significant so:
Modern cash forecasting technologies are transforming organizations into proactive risk managing organizations. Schedule a demo with us to learn how to handle currency risk fluctuations with a robust cash forecasting solution.
The HighRadius™ Treasury Management Applications consist of AI-powered Cash Forecasting Cloud and Cash Management Cloud designed to support treasury teams from companies of all sizes and industries. Delivered as SaaS, our solutions seamlessly integrate with multiple systems including ERPs, TMS, accounting systems, and banks using sFTP or API. They help treasuries around the world achieve end-to-end automation in their forecasting and cash management processes to deliver accurate and insightful results with lesser manual effort.