How to manage FX risk in emerging markets: success factors for corporate clients
The importance of emerging markets in the world economy has grown steadily but managing EM currency risk can be a nightmare for the unwary corporate treasurer. By 2014, emerging market economies already accounted for 36% of world GDP and 27% of world trade, yet in the period between 2010 and 2015 there were eight large depreciations of emerging market currencies, according to the International Monetary Fund. Managing the company’s financial interests in these challenging markets has become a top priority for treasurers. Which factors should treasurers look at?
1. Create a dynamic hedging strategy
“Many corporate treasurers with large exposure to emerging markets do not have firm policies as they usually adopt for G10 currencies”, says Adrian Williams, Commerzbank’s Head of Corporate and Investor Solutions.