New Forex Dilemmas since June’16

To have a handle on forex costs has never been more important. In a year where there has been high volatility, companies have unfortunately found the shortfalls in their systems, procedures and risk management. The volatility for the UK is set to stay for years so now is a good time to get a handle on forex procedures, risks and reporting.

New Forex Dilemmas since June’16When the markets closed on the 23rd June Sterling was valued at 1.49 to the Dollar and 1.30 against the Euro. Now after an average of 17% loss Sterling versus Dollar is at 1.22 and against the Euro at 1.11. Significant moves of this nature have unearthed many weaknesses and reflected that uncovered or over covered positions have respectively materialised huge costs for importers and exporters respectively.

A coherent strategy that is applicable to a firm’s risk profile, industry, customers and competitors is important. The terms and parameters for Brexit have not been set and until we know the UK’s relationship with the EU over the years to come, instability will continue. Uncertainty is not good for business; the resultant volatility is equally another area of management that needs to be added to the burdensome lists for executive management.

What has gone wrong

Examples of problems that we have witnessed materialising are:

- Companies, where they had strategies have found that they were not being correctly implemented or not appropriate for the business

- Instruments have behaved with immediate and unexpected cash and exposure implications

- Derivatives have responded in ways not expected opening further risk gaps and costs

- Strategies have created further risk rather than less

- Systems have not provided proper information

- Accounting has not been accurate in terms of realised, unrealised and cash flow management

- Skills are short

- Management control and Board oversight have been poor.

What to do?

An FX MOT Is almost certainly the answer

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