Hedging complacency adds to corporate FX risk, Citi finds
Citi’s latest global corporate benchmarking survey shows that companies are worryingly complacent about their potential exposure to emerging market currencies and remain reliant on manual processes to manage risk.
Emerging markets are a growth sweet spot for many corporates. But concerns around economic stagnation and trade relations have weighed heavily on emerging market currencies as the US and China continue to butt heads over tariffs.
In this context it might be expected that corporates operating in emerging markets would have a distinct market hedging policy for currencies outside the G10 group of nations. Yet although more than 80% of respondents to Citi’s recent global corporate benchmarking survey reported having exposures to emerging market currencies, a similar percentage admitted that they didn’t differentiate between emerging market and developed market hedging practices.
Jaya Dutt, Citi
Jaya Dutt, global head of risk management solutions for corporate FX at Citi, says that while most of the companies surveyed have an enterprise resource planning (ERP) or treasury management system (TMS) in place, integration between these systems is limited and risk management processes remain largely manual.
“As a consequence they are relying on the hedging policies they already have in place and are constantly looking to revamp these policies, which extend across the full breadth of their FX risk,” she says.