Risk Management

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Are Treasurers Damaging Share Prices? Managing FX risk is a very real and tangible issue: FX losses in 2013 amounted to $17.8bn amongst fewer than 850 multinationals. The Editor discusses the impact on EPS and the serious implications for the international corporate community.

Are Treasurers Damaging Share Prices?

by Helen Sanders, Editor 

FX losses amongst corporations in 2013 amounted to $17.8bn amongst fewer than 850 international companies. In an environment where sophisticated treasury and risk management systems are more readily available and cost effective than ever, online portals streamline the dealing process and a variety of hedging techniques are well-established, it seems hard to understand why. After all, with all these tools at their disposal, surely FX risk management should no longer prove an issue for treasurers of multinational corporations? FiREapps’ recently released 2013 Corporate Earnings Currency Impact Report provides a stark reminder, however, that managing FX risk remains a very real and tangible issue. With 846 multinational corporations included in the study (representing a subset of the Fortune 2000 companies that have at least 15% or more international revenues in at least two currencies) the impact of FX risk within this sample and the broader implications for the international corporate community are material and serious.

Scale and impact of FX losses

Twenty-five percent of the companies included in the FiREapps study reported negative impact resulting from FX volatility over the course of 2013 (figure 1).

Figure 1

This resulted in a net loss of $17.8bn in 2013 (figure 2) reflecting growing losses resulting from currency volatility from previous years, with the exception of the second and third quarters of 2012 when the euro crisis was at its height.

Figure 2

It is not only ‘difficult’ currencies that are resulting in FX losses. Despite the challenges of managing increasing exposures to more challenging currencies, such as in emerging markets, the major ‘culprits’ that are resulting in these exposures are mostly tradable, unregulated currencies, as figure 3 illustrates. Although this study is based on US companies, the same challenges exist for European and Asian companies, although they would report different currency exposures according to their geographic footprint and trading relationships.

Figure 3
   Click image to enlarge

Notably, since the first version of this study was completed in Q1, 2011, the euro was no longer included in the top five currencies and has proved stable against the USD, trading in the tightest range that has existed for over a decade. Consequently, companies for which Euro is not their base currency did not suffer the same negative currency impact as they had done in 2012.

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