Data doubts undermine treasury use of risk quantification

A recent report from Greenwich Associates found that 60% of corporate treasury professionals felt it was not possible to establish best practices for FX. Yet only one in five of the large companies surveyed employ the variance at risk (VaR) framework – such as earnings at risk or cash flows at risk – despite its suitability for precision hedging strategies.

Cash flow at risk and earnings at risk take into account the relative volatilities and correlations of individual currencies when designing hedging strategies and incorporate cash flow and earnings implications in addition to payments.

“However, the methodology requires relatively good information management and access to sophisticated tools and datasets,” says Ken Monahan, senior analyst in Greenwich Associates’ market structure group and author of the report.