Today, I’m going to be talking about objective setting. And when we’re talking about FX policies, a lot of times – almost universally, I guess – I see the objective in the policies to mitigate FX risk, and it’s not really clear what it is we’re communicating to the board of directors who is […]
As companies implement and run foreign currency (FX) risk management programs, they need to be aware of some common mistakes. Not all treasuries will encounter every mistake, but they are sure to encounter at least one of these—if not now, then in the not-too-distant future.
Once a company establishes a balance sheet program, it likely runs on auto-pilot from then on. Exposures are gathered, forecasted, netted, hedged and adjusted inter-month, and the results of the program are reported — but rarely is there a “review” of the hedge program from top to bottom.
To implement a successful hedge program, it’s important that all parties involved know exactly what the hedge program will provide. This prevents disappointment and level sets expectations with management.
Using a Net Investment hedge strategy to boost income has been around for decades, but the ultra-low interest rate environment in Europe combined with the new rules under ASU 2017-12 has renewed curiosity in this approach.
A common misconception is that if you have a foreign currency transaction, you can simply hedge it and apply special hedge accounting.