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Foreign Exchange Management: Creating Value Through Better Decision Making
The Conference Board, Dec 2009, Pages: 44
Foreign Exchange Management: Creating Value through Better Decision Making gauges the impact of the financial crisis on FX management practices. The report finds that applied foreign exchange management practices have shown remarkable resilience through the recent turbulence in global financial markets, and that most firms have left their related processes unchanged.
The findings of the 2008 global survey on foreign exchange management were ready to be published just when the current financial crisis started. Since then, economies around the world, and global financial markets in particular, have experienced turbulence of historic dimensions. Foreign exchange markets have shown levels of volatility not seen for many years. Deleveraging of private household and financial sector asset portfolios triggered the unwinding of massive carry trades between currencies, as investors ran for the exits and looked for safe havens. Expansionary monetary and fiscal policies and economic stimulus packages aimed at stemming the tidal waves of falling demand and manufacturing output, financial rescue packages for investment banks and insurance companies on the verge of bankruptcy whose default was deemed a “systemic risk” for both the banking sector and the real economy at large all, directly or indirectly, triggered the highly erratic behavior of foreign exchange rates during this turbulent period.
In this shifting environment, the analyst felt it prudent to validate the key findings of its 2008 survey. We did this early in 2009 in the form of a pulse survey of a limited sample of multinational corporations. The results of this pulse survey indicate that, while companies have indeed been exposed to higher levels of foreign exchange volatility, and hence greater business risk, their applied foreign exchange management practices seem to have weathered the storm quite well and have proven to be remarkably resilient. Based on these findings, the conclusion is that the pre-crisis results of the 2008 global survey retain their relevance today.
This 2008 survey is a follow up to findings from the 2004 global survey of the relevance of foreign exchange risk in corporate strategic decision making. Moreover, in the 2008 survey, corporate leaders were asked for their personal views about public policy-making with regards to foreign exchange markets. And, in addition to verifying findings from the 2004 survey, we have aimed to identify practices applied in foreign exchange management, including exposure calculation methods, hedging strategies and instruments, and frameworks for governance and risk management.
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