IGTA Journal - Winter 2020/2021

margins (squeezed) and facing more competition in a shrinking market. Therefore, FX risk must be carefully managed to avoid penalizing further declining revenue and margins. The last thing a CFO would tolerate these days is negative P&L impact from FX results. It explains why there is a specific care of this risk. Furthermore, home working has demonstrated that managing FX risks in silo, if not enough automated (and too XL-based), may drive to operating risks, errors, and inefficiencies. Even with a perfect coordination of processes, it is impossible to be 100% efficient. Need for further centralization and automation We all know that recent COVID crisis has reinforced the need of total centralization and automation, as response to the economic crisis. FX management, when not automated from risk identification up to final settlement of hedging instruments, may not be fully controlled. Manual management of FX is resource and time consuming, without generating any value. FX hedging, in one-to-one approach (often applied for hedge accounting reasons – IFRS9) and when high volumes of underlying exposures must be hedged, is highly repetitive, potentially boring for teams in charge and risky if too manual. The time spent on manually hedging exposures is not dedicated to analysis. Automation is virtuous as it mitigates risks, increases internal controls, saves time for more added value tasks, ensures efficiency and consistency of FX programs and strategies, and eventually enables faster production of more adequate reports and dashboards. FX risk remains so high in the top priorities also because treasurers know it is not perfectly managed and potentially source of P&L (negative) impacts. Proactive and dynamic FX management When properly and proactively managed, on a consistent and systematic way, including all currencies, a company can give a competitive advantage to its subsidiaries and operating sale forces. Invoicing in local currency of customers and being invoiced in local currency of suppliers, always help, and prevent risk of them taking buffer or including indexation clauses. FX management should ideally be centrally managed and automated to be systematically applied, and therefore delivering all the benefits of FX programs set up. It must also be adapted via different programs to the different types of underlying businesses of a group. There is seldom one-fit-all program and strategy in terms of FX management. In many cases, because of the diversity of businesses, a MNC should apply different programs sized for each specific activity/business or division. We all claim we would like to create added value in our management. Great! We have here a fantastic opportunity to generate it. Top-down FX strategy definition The logical sequence for enhanced FX management starts by determination of risk tolerance and risk appetite of the group, translated into policies, reflecting the group strategy. Once the underlying businesses are fully understood, treasury can efficiently apply ad hoc FX programs. But programs deliver their full potential when fully, consistently, and IGTA eJournal | Winter 2020/21 | 28