Euromoney, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

FX volatility tests corporate treasury resilience

Extreme FX volatility is proving a challenge for some finance directors who are struggling to minimize the impact on their bottom line.

Illustration: iStock

The sheer scale of currency fluctuation since the start of 2022 is striking. According to Kyriba’s latest currency impact report, the 1,200 publicly traded North American and European companies surveyed for the report experienced cumulative currency impacts of almost $170 billion last year, of which more than $131 billion was negative.

Comparing these figures to the 2021 totals of $67 billion and $23 billion respectively only tells part of the story. During the past 12 months, sterling reached its lowest level against the dollar since 1985, and the yen was worth less than at any time since 1998.

Many finance professionals in large corporates had not even started their careers a quarter of a century ago and therefore have no first-hand knowledge of similar market conditions.

Abhishek Sachdev, Vedanta Hedging

One of the ways they have compensated is to retrench and hope for the best on the spot market, which is not ideal, as Abhishek Sachdev, chief executive of Vedanta Hedging, points out.

He adds that he has seen some chief financial officers (CFOs) go the other way and be more tempted to enter into unnecessarily complex structured products such as outperformance trades, which have the veneer of looking more attractive when there is such high volatility.