FX Risk: Break the Cycle of “Just Keeping Up”

Working on a lean treasury team can be tough. The wide range of areas to cover—cash, liquidity, debt, risk and more—and the amount of information you need to gather, analyze and understand is daunting. All of this takes place while senior management views your team as a cost center that nonetheless needs to provide valuable perspectives and lead important initiatives.

The team's status quo

While your team is working to keep up, they are simultaneously being asked to provide insights, innovation and process improvements to the larger treasury, finance and reporting structure. Macroeconomic events that trigger large currency or interest rate movements, as well as changes that inevitably happen within the company, don’t make this job any easier. In many cases, these changes hamper your team’s ability to improve how treasury works.

Even positive change can be disruptive. The mandate to learn new tools or to implement updated processes can distract your already over-stretched team. Current tools may be inadequate and existing processes stale and unresponsive, but how do you manage to make these pieces better when your key people are barely keeping up?

Gathering exposure data

The area of foreign exchange (FX) risk provides a stark example. Cash flow exposure management requires your team to work closely with business units to get the most up-to-date and accurate information possible before incurring the cost of hedging that risk. Because of the general lack of uniformity in how companies manage the exposure gathering processes, the majority of your time is likely spent reviewing, consolidating, inputting and analyzing your exposure data (for each currency, entity, region, etc.). The potential for your team to get stuck on this process alone can have a big impact on the rest of the organization.

Meanwhile, an important opportunity could be lost. When your team is spending the majority of its time managing the data that they collect from their business units, they are missing the opportunity to collaborate with those same people, get better data through better processes and focus more on effectively managing the performance of your hedging program. But how do you break the cycle of just keeping up and move towards better management of your time, energy and the intellectual capital of your team? Step back and take a hard look at how you and your team spend your time.

The best practice is to get business units to input their own exposures but still maintain control of which risks are hedged. We have talked to many central treasury managers who offer many reasons for why this is not possible. However, it is possible. With the right tools and processes, you can take all of that work off your team’s plate, increase business unit accountability and better understand your data.

Gathering trades

The same concept applies to trade requests. Email and spreadsheets still run this process for treasury teams. Your local business units often have the best view of what the hedges and other trades should look like. However, they still need your direction and oversight. In order to manage this workflow efficiently, you need a standardized execution request and approval process that is easy for all participants to access and utilize. This shifts the weight to your business units to manage their own data and processes without central treasury relinquishing its role as a stakeholder.

Once trades are executed, post-trade processing can consume an enormous amount of time and resources, especially if you seek to achieve hedge accounting. Trade booking, confirmations, hedge documentation, inception effectiveness testing and initial booking of journal entries are jobs that need to be done quickly and well. But are these tasks what your team should be spending its limited time on? If you automate these processes, instead of linking data and monitoring system processes for valuations and hedge effectiveness, your team could spend its time analyzing the results and measuring the performance of your hedging program.

Working with corporate treasury groups over the years, the ChathamDirect team has learned that the hardest and most important job is to be able to explain how well the FX hedging program is performing. Without the right tools, this process can be difficult and the results hard to measure. Large scale events that dramatically shift currency relationships require treasury teams to provide detailed explanations of what the company is exposed to and what current positions would look like if rates were to move in certain directions. Smaller scale events like unexpected gains/losses in your hedging portfolio also require detailed explanations that, without the right tools in place, can make that job time consuming and onerous.

A plan for breaking the "keeping up" cycle

Too often, the two most critical FX risk focus areas—working closely with business units to obtain quality exposure data and maintaining the ability to fully explain the results of the FX hedging program—are crowded out by the repetitive monthly treasury tasks. Chatham advises our clients to automate many of these processes, so their teams can invest the time collaborating with business units and key stakeholders on the most important jobs.

The first step in achieving this objective is to identify the routine administrative and data processing tasks in your organization’s FX risk management process. This entails breaking down your process into specific tasks and determining which of these are candidates for automation or delegation to a more cost-effective resource. Obtaining data from business units is a routine task that you can automate, for example, while collaboration with business units requires subject matter expertise and personal communication. Similarly, consolidating currency and interest-rate data from multiple spreadsheets can benefit from automation while determining the strategy for addressing currency and interest rate changes cannot.

Once you have identified the routine tasks within your workflow, you can determine the scope of your automation needs and begin to evaluate solutions. At this stage, you should weigh the anticipated costs of any new solution in comparison to the savings gained by re-allocating human resources toward more essential tasks. Next, work with your team to determine which core functions can benefit from additional resources and where you can introduce new initiatives to improve the treasury team’s overall performance. When you are in the middle of a hectic month, it can seem daunting to invest time outlining processes and evaluating technology solutions.  However, time spent on this critical task can reap exponential rewards in efficiency and cost savings—all while helping to elevate your treasury function into a more strategic and influential role within your organization.


ChathamDirect is a groundbreaking Treasury Risk Management and hedge accounting platform that supports foreign exchange, interest rate and commodity hedging programs. ChathamDirect, provides a clear view of your entire hedging program, including cash flow forecasts, balance sheet exposures and hedge requests—all securely available on a leading SaasS platform. ChathamDirect is backed by Chatham Financial, an employee-owned, independent market leader with a global team of capital markets experts, risk management advisors, CPAs, lawyers, quantitative analysts, and technology developers who serve more than 2,000 clients annually.

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