With all the difficulties companies have encountered the last few years, the annual budget and planning exercise may be particularly challenging. Those whose company’s fiscal year is the same as the calendar year may be dealing with this challenge currently, but regardless of the timing, Treasury organizations seem to constantly be battling to obtain or keep crucial budget resources. In addition, the different pace of economic recovery for different business models and different countries can result in significant forecasting challenges and will likely lead to significant upcoming FX volatility. Significant FX rate volatility combined with elevated forecast deviation related to both cash flow and balance sheet risk, results in the need for FX risk managers to manage their company’s foreign exchange risk for 2024 and beyond more effectively than ever.
How, then, can FX risk managers obtain those scarce budget dollars, when other parts of the business have competing projects that may help directly increase revenues or decrease expenses?
While it is difficult to quantify all the benefits of more effectively managing FX risk, it is still possible, and AtlasFX can help you put together your business case. Our business case model highlights all the ways we have helped our clients not only reduce their risk, but decrease their expenses as well.
For Treasurers and CFOs
The risk reduction numbers can be particularly compelling. AtlasFX can provide a high-level risk reduction analysis, showing the potential risk reduction due to improved exposure identification and corresponding improved hedge coverage ratios. This can be shown in total dollars, EPS and percentage improvement, based on various VaR levels. Especially following a period of high variance in FX results, showing a reduction in potential FX risk by millions or tens of millions of dollars every year is well received by Treasurers and CFOs.
Cost Savings Sources
The AtlasFX business case analysis also drills into the cost savings from several sources. We investigate any possible trading inefficiencies that can result from:
- Lack of an efficient “hand-off” between hedging programs. This can occur when a cash-flow hedge is closed near the time when a similar balance sheet hedge is initiated, as the FX exposure moves from the income statement to the balance sheet.
- Unnecessary spot trading. This is often the result of ad hoc liquidity trades being made that can be more efficiently managed with FX swaps, adjusting the balance sheet hedge at the same time.
- Triangulating FX exposures. For companies with many currency exposures and potential cross-currency pairs, triangulating the exposures down to the smallest possible notional volume for external trading (while still allowing for all necessary details with internal trades) can save the company from too much external hedging and associated expense.
- Paying too high of a spread on trades. While many FX risk managers think they are adequately reducing trading costs by shopping trades on a multi-bank FX trading platform, there are still many potential inefficiencies we come across. AtlasFX can provide a comprehensive “Transaction Cost Analysis” (TCA) for your FX hedging activity, and the potential savings can be enormous.
For FX Risk Management Teams
Finally, we often come across FX risk management programs that rely on armies of error-prone spreadsheets and a corresponding massive amount of manual effort across the company to stitch it all together. We can save a significant amount of employee time that can be redeployed to higher value-added analysis instead of merely processing the monthly hedging activity just in time before starting the process all over again.
If you are an FX risk manager feeling the pressure of needing to improve your FX program while burdened with inadequate technology and processes, it is time to make the case for change. Let AtlasFX help you make the business case for a complete FX risk management SaaS-based solution today.