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The Absurd Cost of Softwareless FX Management

Among the findings of the Kantox & TMI FX Risk Management Survey, exposure collection and monitoring stands out as the most relevant FX challenge for companies. More than two-thirds of participants acknowledge this point. People who work in Treasury operations know exactly what that means. Exposure data is scattered across different systems —ERP, TMS, Excel files, etc. Different currency pairs must be handled. If firm commitments are hedged, currency markets need to be monitored. If a layered hedging program is in place, dozens of trades need to be executed every week. 

Performing all these tasks manually can turn into a nightmare, especially under volatile market conditions. This is not a healthy situation—neither for the Treasury team nor for the company and its shareholders. 

The Real Cost of Manual Exposure Collection

When FX exposure is manually collected, operational risk is all over the place. The point is so obvious that it scarcely deserves any clarification. Is the data based on balance sheet items, on firm commitments or on forecasted cash flows? Are information flows centralised or fragmented? What kind of checks are performed on the received data? Is there a formal policy like a four eyes principle in place? How are errors detected in thousands of transactions?

To think that Treasury teams can manually perform this variety of tasks without errors defies all imagination. But there are other, hidden costs of softwareless exposure collection and monitoring. Consider the following pitfalls:

  • Inadequate hedging programs. Instead of applying the program that best suits their needs, many firms base their hedging on the available exposure data. The workload can be so overwhelming that it may determine the choice of trading frequency in layered hedging—thus leading the firm to execute an inadequate program
  • A shaky basis for forecasts. Exposure collection is a key input in terms of company forecasts, and most budget-based FX hedging is based on forecasts. Manually collecting and monitoring the relevant information provides a shaky foundation upon which to build a firm’s medium- to long-term currency hedging programs.
  • Less time for value-adding tasks. The cumbersome process of collecting and monitoring FX exposure means that there is less time available for the Treasury team to fine-tune the machine, to optimise hedging programs, and to convert FX into an enabler of revenue growth and increasing profit margins.

The Emergence of Currency Management Automation

The 1990s saw the explosion of software solutions aimed at integrating all facets of the business enterprise under one application (ERP), and then customer service and back-office functions (CRM), followed by Treasury applications (TMS). Today, currency management faces a similar predicament. By facilitating automated end-to-end FX management, Currency Management Automation solutions allow risk managers to build operational resilience at all levels. This includes the pre-trade phase of a hedging program, where exposure collection and monitoring belong.

By bringing the issue of exposure collection and monitoring to the forefront, the Kantox & TMI FX Risk Management Survey illustrates the fact that Treasury operations —particularly in regards to foreign exchange management— are still seen as a technical, ‘administrative’ function at best. We beg to disagree. To the extent that it makes a decisive contribution in terms of growth and risk management, the treasury team’s position should be upgraded to that of a strategic player within the firm.

Want to find out more? Then get your copy of our Survey findings report, FX Hedging Strategies for a Post-COVID-19 World or read the next article in our series where we look at the strategic function of treasury.

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