The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Foreign Exchange

Treasurers need to move out of risk-management comfort zone

Cash flow at risk and earnings at risk can help ensure FX risks are reported correctly, but treasurers need to do more to convince senior management to move away from tried and trusted methods that are no longer fit for purpose.

goldfish_glass_780



Cash flow at risk (CFaR) and earnings at risk (EaR) have much to offer as techniques to test current assumptions and validate exposure forecasting to reflect a company’s FX risks

CFaR measures the extent to which future cash flows may fall short of expectations as a consequence of changes in market variables, while EaR assesses the amount that net income may change due to a change in FX rates over a specified period.

From a reporting perspective, CFaR and EaR allow treasurers to move to an FX risk discussion with the CFO and board and away from a hedging policy-driven approach. By reporting EaR and CFaR values to the board it is much easier to link up with key performance indicators (KPIs) around earnings and revenue.

Mark Lewis Bloomberg_160x186
Mark Lewis,
Bloomberg
 

The traditional percentage hedging approach, however, cannot be tied to these types of KPIs, which boards are now demanding.

It is a challenge to move away from an accepted practice, but treasurers cannot ignore the mounting headlines about public companies losing earnings or revenue due to FX rate movements, says Mark Lewis, corporate treasury product manager at Bloomberg.




You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree