For corporates, Forex exposures are both wonderful and not so great. Maintenance of exposures and associated hedges using MS Excel is at best challenging. Is there a better way to maintain such information? Read further to know.
While speaking with multiple corporate treasurers in India, I understand that Forex Risk Management is viewed as a non-core function. Well, it is meant to be so. Are we not in a business of making profits from the goods we sell? Why should we be so bothered about currency markets and its twists and turns?
The twist in tale comes when in this era of thin profits, profits are further eroded by currency fluctuations. Thus, the answer is currency hedge. Hedges ensure that there are no unexpected loss due to currency fluctuations. But hedges cost money, and maintaining relationships between exposures and hedges takes effort. Constant monitoring of exchange rates is required. Hedges imply no loss but also imply no gain. In addition, Central Banks expect documentation for hedge deals in controlled economies – just to curb speculation.
Traditionally, exposure to hedge deal map is maintained using MS Excel. But as number of orders grow and hedges increase, MS Excel may be inadequate. It is worth investing in a software that maintains hedges, maps hedges & orders and generates & centrally stores documentation relevant to each order.
What is the appropriate level of investment in a non-core function? Added benefits are minimizing unexpected loss, compliance with Central Bank documentation. Investment in a standalone system to manage Forex is quite high and consumes IT bandwidth. Thus, the answer is in cloud based Forex Risk Management Solution.
There are few distinct advantages of cloud based Forex Risk Management Solution:
- Jump start to using in days
- No maintenance except paying bills regularly
- Data is secure and gets backed up regularly by cloud provider.
- Overall cost of acquisition is low.
- Opex as opposed to Capex.
Hence I think, sooner or later corporate treasurers will realize that automation of Forex operations using a cloud based solution may be the only way ahead and perhaps a lot of other aspects of treasury as well.