Currency hedgers rattled by volatility, conference finds

Tumultuous foreign exchange market in September left some hedging strategies in disarray and led to more timely exposure monitoring in one treasury department, said corporate treasurers speaking at FX Week Asia.

The severe volatility in currency markets in recent weeks has tested corporate treasurers and driven some changes in the way in which they monitor their exposures, according to speakers at the FX Week Asia conference in Singapore this week.

“It’s easy to state as an objective that in hedging you’re locking in a given amount. But let’s say you’re looking at eurodollar; if you take the decision to go ahead and lock it in at 1.45 or at 1.35, that can have consequences, as right now those two points are two weeks away from each other. This level of volatility really does make trying to manage a business with significant currency mismatches extremely challenging,” said Damian Glendinning (pictured), vice-president and treasurer at computer manufacturer Lenovo.

Edoardo Sirtori, director and regional treasurer at electronics and semiconductor manufacturer STMicroelectronics, said valuable lessons had been learned by the corporate community during September, with market events underlining the need for more timely monitoring of foreign exchange exposures.

“We were of course fully hedged for September and at the end of the day the profit and loss is fine, but the impact will perhaps be huge mark-to-market swings and a cashflow effect. Of course we cannot afford to have deviation errors, so what has happened during this period is that we have upped the notch of monitoring of exposures from monthly to weekly, and we now update exposures on a weekly basis to ensure that we really minimise those hedge errors. Because in a market such as September, a small hedge error could have devastating effects,” said Sirtori.

Meanwhile, Nidhi Shekhar, regional treasurer for Asia-Pacific at automotive manufacturer Delphi Corporation, shared the view that the events of September were challenging for corporate treasurers, but said it hasn’t yet driven any explicit change in the firm’s monitoring or hedging practices.

“The volatility we’re seeing in the forex markets definitely keeps us all on our toes, and forex is just a small portion of our day-to-day jobs. September caused a change in mark-to-market exposure and everyone’s results were affected by that, but our policies are still the same,” she said.

More broadly, the recent crisis has drummed home the worrying possibility of a double-dip recession as financial market stress affects the real economy, according to Lenovo’s Glendinning. “The levels of volatility we’re seeing right now are troubling. They are troubling simply because they indicate that maybe there are problems out there, and the concern we all have is that all these things going on in the financial markets might end up affecting the real world and causing a recession.”

 

This article was first published on Risk

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