Currency Hedging Policies in Corporate Treasury

Commentary

The old joke says that, if you get ten economists in a room, you will find they have at least eleven different opinions. Ask treasurers to talk about currency hedging and management, and, in comparison, the economists will seem to be in unanimous agreement. The report below shows just how different currency hedging policies and techniques can be, even if there are constants and similarities.

First, it is a highly complex area. It requires constant interaction with Accounting, both as a source of data, and as the function who decides how hedges are recorded and measured. There is usually a lot of interaction with the budgets or financial planning function: they provide the forecasts on which Treasury relies, but they also own the measurement system, which has a key role to play, and which has a big impact on relations with the business units. There is usually interaction with senior management, either at the CFO or the board level – currency has a significant impact on many businesses, so it is important to be fully aligned. And finally, of course, there is Treasury’s own expertise in evaluating the different instruments, their cost, the frequency of execution and the availability and use of banks and their credit lines – not to mention managing the back office side of all the trades.

How do the peers on this call navigate this challenging environment? 

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