Foreign Exchange Risk Management and Brexit
Foreign Exchange (‘FX’) Risk Management (or Currency Hedging as it is often referred to) is forming an increasing part of the Treasury Solutions service offer. The high level of volatility of the Euro against its major trading currencies (especially US Dollar and Sterling) has meant that companies have had to deal with FX Risk Management on a much more formal and integrated basis in recent times. The result of the Brexit referendum has pushed this to the top of the Board agenda for importers from and exporters to the UK.
In the past, this has posed certain problems for companies, not only because of the speed at which this market moves, but also due to the range of derivatives available to manage this risk. In some cases companies were not always familiar with the alternatives available to them and/or Board of Directors and were cautious about the use of derivatives.
Treasury Risk and FX Management
- Devise FX Hedging strategy as a pre-cursor to investment and/or acquisition activity
- Devise FX Risk Management strategy where borrowings are in a currency other that EUR
- Asses the impact of foreign exchange rate movements on EUR dominated prices where goods are supplied from outside the Eurozone but invoiced in EUR to Irish Companies
- Undertake accounting and foreign exchange projects (especially for both multi-nationals and high-tech export oriented companies)
- Devise foreign exchange risk management strategies where companies have material exposure on either their purchases or sales to movements in foreign exchange rates in order to assist in the achievement of profit targets, margin attainment or financial covenant compliance.
Company G had a significant exposure to US Dollars (‘USD’) through a raw material that it purchases. The associated revenues were in Euro (‘EUR’) but the price of the produce in EUR was somewhat dictated by the relative movements in the EUR/USD exchange rate. Treasury Solutions was engaged by the client in order to assess its current FX management practices, what changes could be made to the existing practices, the opportunity for the company to use different types of derivatives in order to manage this risk and finally to ensure that the reporting of both exposures and their hedging was to a high standard.
- Document existing processes, including who was responsible, dates upon which exposures are known/identified and communicated
- Identification of both those with whom the initial risk lies and those with whom the risk of management and the foreign exchange risk arises
- Review of past performance (FX gains and losses) and overall evaluation of past hedging strategies
- Identification of change to the buying process and communication of exposures within the group on a timely basis
- Identification of appropriate derivatives to use in order to manage the risks
- Review of documentation associated with FX Risk Management (ISDA Agreements, Treasury Dealing Mandates, Memorandum & Articles of Association)
- Review of existing foreign exchange exposure and hedging reporting
- Review of existing foreign exchange management policy
- Devise new reporting formats for the reporting of foreign exposures and hedging to the Board
- Issuance of report to deal with efficiencies identified, changes to processes and other work to be done in order to achieve best practice in the area
A detailed report to the Board of the client covering all aspects of foreign exchange risk management in the company.
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We are a large company with a turnover of c.€250m. Initially we used Treasury Solutions to review our treasury policy and procedures to ensure that they were appropriate to an organisation of our size and complexity. Since then the group refunded its entire debt as part of a major acquisition and the advice we received in relation to strategy, bank covenants and facility letters was invaluable. TS have continued to support us through the current financial crisis with pragmatic and independent advice.
CFO,, Large Company
I have used Treasury Solutions since 2005 for a variety of roles - from the creation of a top class Treasury Policy that is tangible and meaningful, to a review of our treasury function from an Audit and Best Practice viewpoint, to adhoc day-to-day advice and views (on) what is happening in the re-financing market. Reliable, consistent and customer-focused; they are very much a part of my decision making process.
CFO,, Large PLC and Private Company
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CFO,, Major Private Company
We used Treasury Solutions to assist us with the development of a foreign exchange policy. Their suggestions were practical and well communicated. They understood the subject thoroughly and we will use them again in the future should the need arise.
FC, , Private Irish Company with turnover of €160m
We are an Irish owned multinational company with a turnover in the region of €350m and 2,000 staff. Our treasury function is very complex with a large number of FX exposures and funding arrangements. Treasury Solutions has given invaluable support on a wide range of matters from strategic policy to day-to-day advice. Independent, professional and thoroughly competent.
Group Finance Director,, Large Private Company
John Finn of Treasury Solutions continues to be an invaluable help to us as a small business in our long-term financial planning and in our dealings with financial institutions. In most recent times, his experience and up-to-date knowledge of the financial scene allowed us to be confident of our case in prolonged and difficult negotiations with our main banking partner. Encouraged by John’s tenacity and advice we achieved a favourable long-term result, which will allow us to get back to focusing fully on the running and developing of our business.
Ruairí & Marie-Thérèse de Blacam,, Inis Meáin Rest. & Suites