Treasury: Banks and corporates get back to basics

FOR MOST OF this decade, many corporates took it for granted that foreign exchange was a low-volatility product that was easy to hedge. That notion has been shattered. "The moves in the market over the past few months have resulted in many more corporates thinking about and trying to quantify their FX risks," says Rashid Hoosenally, global head of FX structuring at Deutsche Bank.

The rise in FX market volatility has served as a rude reminder to corporates with currency exposure of the wisdom of prudently managing FX risk. Companies in Brazil, South Korea, Poland and Mexico have seriously mismanaged FX exposures and reported huge losses as a result. This was either through their own incompetence or, more worryingly, because they were ill-advised on hedging by banks.

Hoosenally says: "Many of the problems [corporate losses] we’ve seen have not resulted from the fact that the instruments they’ve used were necessarily...