The document discusses the findings of a survey on how Canadian companies manage foreign exchange risk. Key findings include:
- Over 90% of organizations surveyed rated foreign exchange management as important, however just over half have a formal policy for managing FX risk.
- 42% of companies said they are now doing business in emerging markets like China and Mexico, bringing additional currency volatility.
- Responsibility for managing FX risk generally lies with the CFO, VP of Finance, or Treasurer, who often report to a board committee on risk exposure.
- Companies aim to protect against short-term currency fluctuations and provide certainty for purchases/sales, rather than speculate on currency movements.
Since the onset of the global financial crisis in 2008, businesses around the world have faced a barrage of new risk-related challenges.
The macroeconomic environment of recent years, marked by the global financial crisis, fiscal uncertainty in the US and sovereign debt problems in Europe, has also helped to make companies more riskaverse, leading them to swap bold investment decisions for more cautious behaviour and cash hoarding. The tide is turning, however, with most expecting 2014 to mark a return to growth...
The survey found that bribery and corruption remain widespread globally and especially in rapid-growth markets. Respondents showed an increasing willingness to engage in unethical practices like making cash payments or misstating financials to cope with economic pressures. However, many companies are still failing to strengthen controls to prevent such issues. Mixed messages from management dilute tone at the top, and training and enforcement of policies are lacking. Stronger prevention efforts are needed as regulatory scrutiny of corporate activities in high-risk markets intensifies.
It is important to consider the emerging risks surrounding commercial lending and commercial real estate lending. What stage are we in of this current economic cycle? The answer is uncertain, but it is important to consider the emerging risks surrounding commercial lending and CRE lending.
Instilling the Right Credit Risk CultureLibby Bierman
As the Comptroller's Handbook states, "a bank’s first defense against excessive credit risk is the initial credit-granting process, sound underwriting standards, an efficient, balanced approval process, and a competent lending staff." The start of a new year is the perfect time to review and improve your credit risk culture.
Garrett Morris, director of consulting at Sageworks, discussed the key elements of a strong credit risk culture, including:
-Three Ps of credit analysis
-Five Cs of credit
-Five Cs of data collection
-12 questions to ask at your institution
Governance in Enterprise Risk Management
Presented by Michael Lawrence
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
Heading into 2020, The Risk Management Association is focusing on eight risks. Learn about the top risks the financial services industry faces and how you can address them.
The document discusses how lax lending standards during the 2007-2008 financial crisis contributed to its occurrence, and argues that a return to basic asset-based lending principles is needed. It outlines the basics of commercial lending such as understanding customers, risks, repayment ability, and using the five "C"s of credit analysis - character, capacity, capital, conditions, and collateral. Covenants and scrutinizing add-on acquisitions are also recommended to strengthen underwriting. Overall it advocates going "back to basics" in commercial lending to build a robust credit culture and prevent future crises.
Since the onset of the global financial crisis in 2008, businesses around the world have faced a barrage of new risk-related challenges.
The macroeconomic environment of recent years, marked by the global financial crisis, fiscal uncertainty in the US and sovereign debt problems in Europe, has also helped to make companies more riskaverse, leading them to swap bold investment decisions for more cautious behaviour and cash hoarding. The tide is turning, however, with most expecting 2014 to mark a return to growth...
The survey found that bribery and corruption remain widespread globally and especially in rapid-growth markets. Respondents showed an increasing willingness to engage in unethical practices like making cash payments or misstating financials to cope with economic pressures. However, many companies are still failing to strengthen controls to prevent such issues. Mixed messages from management dilute tone at the top, and training and enforcement of policies are lacking. Stronger prevention efforts are needed as regulatory scrutiny of corporate activities in high-risk markets intensifies.
It is important to consider the emerging risks surrounding commercial lending and commercial real estate lending. What stage are we in of this current economic cycle? The answer is uncertain, but it is important to consider the emerging risks surrounding commercial lending and CRE lending.
Instilling the Right Credit Risk CultureLibby Bierman
As the Comptroller's Handbook states, "a bank’s first defense against excessive credit risk is the initial credit-granting process, sound underwriting standards, an efficient, balanced approval process, and a competent lending staff." The start of a new year is the perfect time to review and improve your credit risk culture.
Garrett Morris, director of consulting at Sageworks, discussed the key elements of a strong credit risk culture, including:
-Three Ps of credit analysis
-Five Cs of credit
-Five Cs of data collection
-12 questions to ask at your institution
Governance in Enterprise Risk Management
Presented by Michael Lawrence
Monday 10th October 2016
APM North West branch and Risk SIG conference
Alderley Park, Macclesfield
Heading into 2020, The Risk Management Association is focusing on eight risks. Learn about the top risks the financial services industry faces and how you can address them.
The document discusses how lax lending standards during the 2007-2008 financial crisis contributed to its occurrence, and argues that a return to basic asset-based lending principles is needed. It outlines the basics of commercial lending such as understanding customers, risks, repayment ability, and using the five "C"s of credit analysis - character, capacity, capital, conditions, and collateral. Covenants and scrutinizing add-on acquisitions are also recommended to strengthen underwriting. Overall it advocates going "back to basics" in commercial lending to build a robust credit culture and prevent future crises.
The document describes resources that the Risk Management Association (RMA) is providing on its COVID-19 Resource Center for members. It includes crisis management tools prepared by experts, guidance on legislative and regulatory issues, articles from trusted sources, on-demand webinars, and information on how to access the resources. The goal is to help members use sound risk management principles during the pandemic.
This document provides an overview of country risk analysis. It discusses the history and sources of country risk data, including rating agencies. Various methodologies are described for analyzing economic, financial, and geopolitical factors that influence a country's risk level. The document outlines the key components of a comprehensive country risk analysis, including evaluating a country's economic policies, financial system, and strengths/weaknesses. The overall goal is to assess risk exposure and set appropriate pricing for credit or investment decisions involving that country.
Credit risk management and Exchange rate risk managementkamakshi potti
This document discusses credit risk management and exchange rate risk management. It defines credit risk as the potential failure of a borrower to repay a loan or meet obligations. It outlines the credit risk management process of identifying, measuring, monitoring, and controlling risk. It also defines exchange rate risk as the risk of currency fluctuations impacting the value of foreign currency cash flows. It describes transaction, translation, and economic exchange rate exposures and strategies to manage them, such as hedging with currency derivatives or adjusting marketing, production, and financial initiatives.
This document summarizes an advisory presentation on keys to success in international sales. It discusses realities of international trade such as its growth impact on GDP. It outlines six winning export strategies: know your buyer, investigate the market, introduce buyer financing, price opportunistically and hedge risk, explore alternative working capital, and do your homework. The presentation provides examples and discusses working with specialists like banks experienced in international trade.
This document discusses risk appetite and establishing risk boundaries. It provides definitions of risk appetite from various sources and how it has evolved over time. It also discusses the importance of articulating risk appetite and influencing stakeholders such as boards, regulators, rating agencies, and other groups. Components of risk appetite are defined including risk capacity, appetite, target, tolerance, and limits.
This excerpt from RMA's Credit Risk Council's “2017 Industry Insights: Perspectives from the Front Line” talks about the challenges ahead and provides 8 tips on how risk managers can navigate today's banking environment.
Financial services face both physical and transitional risks regarding climate change. No matter what you believe to be true about climate science, the reality is that your bank must address it.
The document discusses common causes of financial crises and failures based on lessons learned from the recent global financial crisis. It outlines regulatory reforms proposed as a result, and emphasizes the importance of basic risk analysis for banks. Key causes mentioned include flawed business strategies, poor governance/oversight, excessive risk-taking, and macroeconomic imbalances. Proper accountability of all stakeholders in risk management is highlighted.
How has the risk manager evolved to meet the needs of the banking industry? This slide deck takes a look at how the position has evolved and what skills should you anticipate needing in the future to compose the skill profile of the next decade’s agile risk manager.
This document provides information about an upcoming conference on economic sanctions to be held on December 6-7, 2016 in New York City. The conference will address current issues related to sanctions on Iran, Russia/Ukraine, Cuba and other countries. It will provide practical guidance on allowed transactions and business opportunities in sanctioned countries. Sessions will focus on compliance best practices including screening, due diligence and assessing ownership. The conference is intended for compliance professionals and legal experts from global financial and corporate institutions.
How often have you wondered, “what else can go wrong and how are all the risks interconnected?” Developing a risk governance program, a stress testing and scenario analysis program, as well as a risk appetite statement, can help you build an effective, proactive risk management strategy and enhance the risk culture of your institution.
RMA's Risk Appetite Workbook is a practical guide to understanding and developing a risk appetite statement that is appropriate for your bank. Also available are workbooks on Scenario Analysis & Stress Testing for Community Banks, and Governance & Policies.
This document discusses political risk management strategies for multinational corporations operating abroad. It covers Freeport-McMoRan's operations in Indonesia which face high political risk. It also discusses macro and micro political risks faced by MNCs and how unstable governments and changing policies can constrain foreign investments and trade. Finally, it outlines techniques for MNCs to manage political risks, including relative bargaining power analysis, integrative and defensive strategies, and proactive political engagement.
A new emphasis on enterprise risk management from regulators has heightened awareness among bankers to get educated and adopt these best practices at their institution. In response to this increased focus, the RMA ERM Council developed the ERM framework and associated competencies, which became the foundation for a series of highly practical workbooks for implementing effective ERM.
Sub-prime Crisis - Collapse of Lehman BrothersSudhir Kumar
The document provides an overview of the collapse of Lehman Brothers during the subprime crisis. It begins with an introduction and literature review on analyses of the collapse from various perspectives, such as the process, reasons, impacts, and lessons learned. It then briefly describes the circumstances leading up to Lehman Brothers' bankruptcy, including their aggressive financial strategies and high exposure to subprime mortgage products. The document concludes with a critical analysis of reasons for the collapse, including macroeconomic factors, Lehman Brothers' corporate strategies and risk management failures, and lack of effective government supervision.
The document discusses liquidity risk management for life insurance companies. It defines liquidity risk and identifies potential sources. It describes three levels of liquidity management: day-to-day cash management, ongoing cash flow management, and stress liquidity risk management. Stress liquidity risk management focuses on a company's ability to meet cash demands during a period of stress. The document provides an overview of managing stress liquidity risk through product design, portfolio strategy, monitoring, and preparedness to take action. It also identifies some embedded liquidity options within products and techniques to measure and reduce liquidity risk exposure.
Nonprofit Services Center hosted Dione Alexander of NFF and a local panel of experts to explore how the financial health of nonprofits is changing, what is needed and what to look for in the evolving process of financial stability and sustainability.
The document discusses the results of Bloomberg Markets' second annual ranking of the world's strongest banks based on criteria like capital levels, asset quality, and profitability. Several key points:
- Canadian banks dominated the top 10, claiming 4 of the top spots, led by Oversea-Chinese Banking Corp. of Singapore at #1 for the second year in a row.
- Canadian banks have been able to go on an overseas acquisition spree thanks to their financial strength and flexibility compared to banks in other countries racing to sell assets and raise capital.
- Canada's banking regulator has stricter capital requirements than international standards, contributing to the resilience of Canadian banks.
The document summarizes the findings of a 2014 global survey on reputation risk conducted by Deloitte and Forbes Insights. Some key findings include:
- 87% of over 300 executives surveyed rated reputation risk as more important than other strategic risks facing their companies.
- Responsibility for managing reputation risk resides primarily with senior leadership, including the CEO, CRO, board of directors, and CFO.
- The top drivers of reputation risk are ethics/integrity issues, security risks, and product/service risks related to safety, health and the environment.
- Companies are investing more in tools and capabilities to improve their management of reputation risk.
Wim Grosemans, Head of Product Management International Payments at BNP Paribas, presented a lunch session about FX Volatility at EuroFiannce Vienna on October 12th.
This document summarizes a session on leadership in treasury and emerging markets. It discusses how emerging markets have grown significantly in recent decades and now represent around 11% of the global market cap. It also discusses challenges that treasury teams face when expanding into emerging markets. The document includes a case study of Stanley Black & Decker, a global manufacturing company that generates around 17% of its revenue from emerging markets. It discusses lessons learned from Stanley Black & Decker's experience in emerging markets, including the need to simplify existing operations, prepare for growth, and collaborate internally.
The document describes resources that the Risk Management Association (RMA) is providing on its COVID-19 Resource Center for members. It includes crisis management tools prepared by experts, guidance on legislative and regulatory issues, articles from trusted sources, on-demand webinars, and information on how to access the resources. The goal is to help members use sound risk management principles during the pandemic.
This document provides an overview of country risk analysis. It discusses the history and sources of country risk data, including rating agencies. Various methodologies are described for analyzing economic, financial, and geopolitical factors that influence a country's risk level. The document outlines the key components of a comprehensive country risk analysis, including evaluating a country's economic policies, financial system, and strengths/weaknesses. The overall goal is to assess risk exposure and set appropriate pricing for credit or investment decisions involving that country.
Credit risk management and Exchange rate risk managementkamakshi potti
This document discusses credit risk management and exchange rate risk management. It defines credit risk as the potential failure of a borrower to repay a loan or meet obligations. It outlines the credit risk management process of identifying, measuring, monitoring, and controlling risk. It also defines exchange rate risk as the risk of currency fluctuations impacting the value of foreign currency cash flows. It describes transaction, translation, and economic exchange rate exposures and strategies to manage them, such as hedging with currency derivatives or adjusting marketing, production, and financial initiatives.
This document summarizes an advisory presentation on keys to success in international sales. It discusses realities of international trade such as its growth impact on GDP. It outlines six winning export strategies: know your buyer, investigate the market, introduce buyer financing, price opportunistically and hedge risk, explore alternative working capital, and do your homework. The presentation provides examples and discusses working with specialists like banks experienced in international trade.
This document discusses risk appetite and establishing risk boundaries. It provides definitions of risk appetite from various sources and how it has evolved over time. It also discusses the importance of articulating risk appetite and influencing stakeholders such as boards, regulators, rating agencies, and other groups. Components of risk appetite are defined including risk capacity, appetite, target, tolerance, and limits.
This excerpt from RMA's Credit Risk Council's “2017 Industry Insights: Perspectives from the Front Line” talks about the challenges ahead and provides 8 tips on how risk managers can navigate today's banking environment.
Financial services face both physical and transitional risks regarding climate change. No matter what you believe to be true about climate science, the reality is that your bank must address it.
The document discusses common causes of financial crises and failures based on lessons learned from the recent global financial crisis. It outlines regulatory reforms proposed as a result, and emphasizes the importance of basic risk analysis for banks. Key causes mentioned include flawed business strategies, poor governance/oversight, excessive risk-taking, and macroeconomic imbalances. Proper accountability of all stakeholders in risk management is highlighted.
How has the risk manager evolved to meet the needs of the banking industry? This slide deck takes a look at how the position has evolved and what skills should you anticipate needing in the future to compose the skill profile of the next decade’s agile risk manager.
This document provides information about an upcoming conference on economic sanctions to be held on December 6-7, 2016 in New York City. The conference will address current issues related to sanctions on Iran, Russia/Ukraine, Cuba and other countries. It will provide practical guidance on allowed transactions and business opportunities in sanctioned countries. Sessions will focus on compliance best practices including screening, due diligence and assessing ownership. The conference is intended for compliance professionals and legal experts from global financial and corporate institutions.
How often have you wondered, “what else can go wrong and how are all the risks interconnected?” Developing a risk governance program, a stress testing and scenario analysis program, as well as a risk appetite statement, can help you build an effective, proactive risk management strategy and enhance the risk culture of your institution.
RMA's Risk Appetite Workbook is a practical guide to understanding and developing a risk appetite statement that is appropriate for your bank. Also available are workbooks on Scenario Analysis & Stress Testing for Community Banks, and Governance & Policies.
This document discusses political risk management strategies for multinational corporations operating abroad. It covers Freeport-McMoRan's operations in Indonesia which face high political risk. It also discusses macro and micro political risks faced by MNCs and how unstable governments and changing policies can constrain foreign investments and trade. Finally, it outlines techniques for MNCs to manage political risks, including relative bargaining power analysis, integrative and defensive strategies, and proactive political engagement.
A new emphasis on enterprise risk management from regulators has heightened awareness among bankers to get educated and adopt these best practices at their institution. In response to this increased focus, the RMA ERM Council developed the ERM framework and associated competencies, which became the foundation for a series of highly practical workbooks for implementing effective ERM.
Sub-prime Crisis - Collapse of Lehman BrothersSudhir Kumar
The document provides an overview of the collapse of Lehman Brothers during the subprime crisis. It begins with an introduction and literature review on analyses of the collapse from various perspectives, such as the process, reasons, impacts, and lessons learned. It then briefly describes the circumstances leading up to Lehman Brothers' bankruptcy, including their aggressive financial strategies and high exposure to subprime mortgage products. The document concludes with a critical analysis of reasons for the collapse, including macroeconomic factors, Lehman Brothers' corporate strategies and risk management failures, and lack of effective government supervision.
The document discusses liquidity risk management for life insurance companies. It defines liquidity risk and identifies potential sources. It describes three levels of liquidity management: day-to-day cash management, ongoing cash flow management, and stress liquidity risk management. Stress liquidity risk management focuses on a company's ability to meet cash demands during a period of stress. The document provides an overview of managing stress liquidity risk through product design, portfolio strategy, monitoring, and preparedness to take action. It also identifies some embedded liquidity options within products and techniques to measure and reduce liquidity risk exposure.
Nonprofit Services Center hosted Dione Alexander of NFF and a local panel of experts to explore how the financial health of nonprofits is changing, what is needed and what to look for in the evolving process of financial stability and sustainability.
The document discusses the results of Bloomberg Markets' second annual ranking of the world's strongest banks based on criteria like capital levels, asset quality, and profitability. Several key points:
- Canadian banks dominated the top 10, claiming 4 of the top spots, led by Oversea-Chinese Banking Corp. of Singapore at #1 for the second year in a row.
- Canadian banks have been able to go on an overseas acquisition spree thanks to their financial strength and flexibility compared to banks in other countries racing to sell assets and raise capital.
- Canada's banking regulator has stricter capital requirements than international standards, contributing to the resilience of Canadian banks.
The document summarizes the findings of a 2014 global survey on reputation risk conducted by Deloitte and Forbes Insights. Some key findings include:
- 87% of over 300 executives surveyed rated reputation risk as more important than other strategic risks facing their companies.
- Responsibility for managing reputation risk resides primarily with senior leadership, including the CEO, CRO, board of directors, and CFO.
- The top drivers of reputation risk are ethics/integrity issues, security risks, and product/service risks related to safety, health and the environment.
- Companies are investing more in tools and capabilities to improve their management of reputation risk.
Wim Grosemans, Head of Product Management International Payments at BNP Paribas, presented a lunch session about FX Volatility at EuroFiannce Vienna on October 12th.
This document summarizes a session on leadership in treasury and emerging markets. It discusses how emerging markets have grown significantly in recent decades and now represent around 11% of the global market cap. It also discusses challenges that treasury teams face when expanding into emerging markets. The document includes a case study of Stanley Black & Decker, a global manufacturing company that generates around 17% of its revenue from emerging markets. It discusses lessons learned from Stanley Black & Decker's experience in emerging markets, including the need to simplify existing operations, prepare for growth, and collaborate internally.
This document discusses programs and events offered by Warwick Business School (WBS) for alumni. It highlights several post-experience qualifications available for individuals and those sponsored by organizations, including an MBA, MPA, doctoral program, and several diploma programs. It also previews upcoming finance-focused content in the magazine, including articles on the credit crunch, climate change and financial markets, and currency crisis. The document outlines WBS's strategic vision to be a top European business school and compete globally by 2015, including building on research, curriculum development, and partnerships. It discusses efforts to better connect and engage the large global alumni network through technology and regional groups.
This slide set is a work in progress and is embedded in my Principles of Finance course, which is also a work in progress, that I teach to computer scientists and engineers
http://awesomefinance.weebly.com/
The document discusses managing foreign exchange risk and Mecklai's approach. It outlines the challenges of high volatility in markets and impacts on businesses. Traditional risk management approaches are discussed along with their pros and cons. Mecklai's approach focuses first on understanding the business risks and exposures before developing hedge strategies aligned to the business. The approach involves quantifying exposures, defining risk appetite and target rates, and monitoring hedge strategies. Mecklai works with clients to devise risk management policies, implement automated systems, and provide ongoing support.
The document discusses strategic foreign exchange risk management. It defines strategic FX risk as transactional and profit/loss translation exposures with time horizons up to 10 years. Due to elasticities, options are best suited to hedge strategic risk. The behavior of strategic exposures can vary based on volumes and pricing. Hedging techniques should match the risk characteristics of the exposure using options' Greeks (delta, gamma, vega, theta) which measure sensitivity to spot rates, volatility, and time decay. Delta can hedge current exposure, gamma hedges elasticities, and vega hedges volatility risk.
Foreign Exchange Consultants provides exposure assessment, risk management advice, and trade execution services for companies. They help companies develop hedging policies, centrally manage FX trading and risk, adopt uniform accounting, measure hedging performance, and oversee treasury risk management. Their trade execution services provide indicative pricing on FX derivatives and engage client bank pricing. They also offer ongoing position monitoring, post-trade hedge valuations, periodic assessment of hedge efficacy, and annual reviews of hedging programs. The company is led by Managing Director Keith Underwood, who has over 25 years of FX trading and risk management experience, and Managing Director Brian Doyle, who has 15 years of experience in the inter-bank currency derivatives market.
Corporate FX Questions and Answers for 2016FiREapps
Andy Gage (VP at FiREapps) and Bruce Lynn (MP at FECG) explore corporate foreign currency management programs that have emerged in response to increasing and sustained complexity and volatility in the global currency markets over the past year and beyond.
Global regulatory changes are making options more appealing than forwards and swaps for hedging. IFRS 9 accounting standards and Basel III regulations increase the costs of swaps and forwards for banks and corporations. Options will have relatively lower credit charges. As a result, corporations may consider alternative hedging strategies like target redemption forwards to address these regulatory changes while still minimizing risks. Target redemption forwards offer corporations attractive protection rates through leveraged forwards overlaid with a target level of cumulative profit. This structure provides downside protection and upside participation if currency moves are favorable. However, the uncertain maturity is a drawback as the hedge may be redeemed before needed.
Overcoming compliance fatigue - Reinforcing the commitment to ethical growth ...EY
This presentation is based on EY FIDS' 13th Global Fraud Survey. It highlights the state of fraud, bribery and corruption, comprising global as well as India findings.
For further information, please visit: http://www.ey.com/FIDS
This document presents the key findings of a 2016 benchmarking report on anti-money laundering compliance in the money services business industry in Canada. It finds that while FINTRAC reporting, recordkeeping systems, policies/procedures, and staff training have significantly improved, many MSBs still need to focus more on identifying potentially suspicious transactions and enhancing risk assessments. However, it notes that MSBs are now better positioned to focus on these areas as other elements of their compliance programs have been established. The report also discusses the issue of "de-risking" where financial institutions terminate relationships with perceived high-risk clients like MSBs.
This document presents the key findings of a 2016 benchmarking report on anti-money laundering compliance in the money services business industry in Canada. It finds that while many MSBs have improved their FINTRAC reporting, recordkeeping systems, policies/procedures, and staff training, they still need to focus more on identifying potentially suspicious transactions and enhancing risk assessments. The report also notes that some large banks are still onboarding new MSB clients and maintaining accounts for existing clients that meet ongoing requirements.
The implications of de-risking on the financial system in Latin AmericaJohn Owens
In May 2018, I traveled to Asunción, Paraguay to present on the implications of de-risking on the financial sector, especially in Latin America. I highlighted what de-risking is, its impact, regional and international groups working on de-risking and some of the potential steps that the industry can take to address the thorny issue of de-risking.
Let me now your thoughts.
Willis_FinancialInstitutionsRiskIndex2025_NETPUB_GC (1)Elizabeth Smith
The document summarizes the findings of the Willis Financial Institutions 2025 Risk Index, which surveyed 150 C-suite executives from financial institutions globally to identify the major risks and trends facing the financial sector over the next decade. It found that the top risks were regulatory changes and complexity, global talent shortages, and demographic shifts. The index also identified six megatrends driving risk: regulatory changes, business model pressures, changes in investment and capital, digitalization, demographic shifts, and skills shortages. C-suite executives viewed regulatory changes as posing the biggest risk. The document analyzes each megatrend and the associated risks identified by the survey respondents.
Managing Director Christopher Recor takes part in an expert forum discussion of sanctions compliance. This is a reprint from the July – September 2015 issue of Risk & Compliance Magazine.
The document provides an overview of the current economic and regulatory environment for financial institutions. It notes that while the US and UK economies grew in 2014, the Eurozone, Japan, and some emerging markets like China saw weaker growth. Regulatory reforms continue to sweep the industry globally, with requirements becoming more stringent in areas like capital adequacy, liquidity, risk management, and conduct. Complying with multiple and sometimes conflicting regulations across jurisdictions poses ongoing challenges for large financial institutions.
CFO Risk Intelligence - Harvey ChristophersAzure Group
The document discusses the evolving role of the CFO from financial risk manager to strategic leader in enterprise-wide risk management. It outlines 6 key focus areas for CFOs to play a role in building a risk intelligent organization: 1) Prepare for expected and unexpected risks, 2) Recognize strategy is not fixed and engage in strategic risk conversations, 3) Distinguish vital few risks from trivial many, 4) Determine risk appetite, 5) Manage reputational risks, and 6) Conduct compliance stress tests for operating globally. The CFO's role is important for oversight, risk reporting, and ensuring risks are managed effectively across the organization.
Foreign Exchange Exposure Management: Benchmarking the Practices of 275 Firms Proformative, Inc.
The document summarizes the findings of a global study on foreign exchange exposure management practices. Some key findings include:
- 59% of companies surveyed reported a material foreign exchange gain or loss over the past 12 months, up from 40% in 2008.
- Challenges with data integrity and exposure calculation were cited as the top issues facing FX risk management.
- A majority of companies monitored exposures monthly, but frequency alone could not overcome issues with unreliable data.
- 71% of companies hedged 80% or less of their exposure, suggesting a lack of confidence in exposure calculations.
PRI_Engaging on anti-bribery and corruptionOlivia Mooney
This document discusses the business case for companies and investors to engage on anti-bribery and corruption issues. It outlines that corruption costs an estimated $2.6 trillion annually, or over 5% of global GDP. Corruption scandals can result in huge financial losses and reputational damage for companies. Regulatory enforcement is also increasing across jurisdictions, with the US and UK aggressively prosecuting companies. Deferred prosecution and non-prosecution agreements now require companies to pay large fines, admit wrongdoing, and implement compliance measures. As such, engagement helps companies strengthen anti-corruption controls to mitigate risks and supports investors' fiduciary duty to protect shareholder value.
Dissertation on Effects of Business Ranking on International Trade - Phdassis...PhD Assistance
The present article helps the USA, the UK, Europe and the Australian students pursuing their computer Science postgraduate degree to identify the right topic in the area of computer science specifically on machine learning, and cuckoo optimization algorithms. These topics are researched in-depth at the University of Spain, Cornell University, University of Modena and Reggio Emilia, Modena, Italy, and many more. PhD Assistance offers UK Dissertation Research Topics Services in Computer Science Engineering Domain. When you Order Computer Science Dissertation Services at PhD Assistance, we promise you the following – Plagiarism free, Always on Time, outstanding customer support,written to Standard, Unlimited Revisions support and High-quality Subject Matter Experts
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This document summarizes steps for formulating a treasury risk management framework. It discusses understanding how treasury impacts the business, identifying treasury risks, selecting objectives and policies, defining the treasury organization structure, ensuring board review and approval of policies, and setting up regular reporting procedures. Key points covered include understanding critical success factors, risk appetite, identifying risks like interest rate, exchange rate, liquidity and economic risks, selecting treasury objectives in areas like foreign exchange and interest rate management, and setting policy parameters and responsibilities.
Operation risk management in Private Equity firmsJoseph Kariuki
This document provides an overview of operational risk management strategies for private equity firms. It discusses key operational risks such as cyber risks, compliance and misconduct risks, outsourcing risks, and crisis management. For each risk, the document outlines frameworks and examples of how private equity firms can mitigate exposure. It also includes case studies of operational crises at UBS Bank and Chipotle to demonstrate best practices for crisis response. The overall summary emphasizes that private equity firms should have robust risk management plans in place to prevent issues and protect their reputation and financial performance.
Creditinfo Jamaica Seminar - Establishing a credit bureau in jamaica (gene leon)Creditinfo
Dr. Gene Leon discusses the important role that credit bureaus play in providing information to financial institutions to assess credit risk and make lending decisions. Credit bureaus decrease information asymmetries, help evaluate creditworthiness more accurately, and increase access to affordable credit, thereby facilitating economic growth. While credit bureaus provide significant benefits, it is important they maintain public trust by operating with transparency, security, reliability and understanding to gain widespread acceptance. Successful implementation may take several years and require a cultural shift toward greater openness about personal financial information.
Исследование Insurance Banana Skins 2015PwC Russia
В исследовании Insurance Banana Skins 2015, направленном на изучение рисков в сфере страхования в 2015 году и проведенном Центром по изучению финансовых инноваций (ЦИФИ) совместно с фирмой PwC, участвовало более 800 респондентов из числа страховщиков и сторонних наблюдателей из 54 стран мира. Цель исследования заключалась в том, чтобы выяснить, какие риски, по их мнению, представляют наибольшую опасность для страхового сектора в ближайшие 2‒3 года.
Новое исследование основных рисков в сфере страхования показало, что в число самых серьезных рисков для страховщиков теперь входят киберриски и процентные ставки. Эти риски появились в рейтинге пятого обзора впервые за все время проведения исследований. Таким образом, становится очевидно, насколько большую озабоченность они вызывают в отрасли, если они рассматриваются в одном ряду с изменениями в нормативно-правовом регулировании и макроэкономикой в более широком контексте.
Brink's equity investor presentation december 2017 finalinvestorsbrinks
This document provides an investor presentation for Brink's, a global security and logistics company. It summarizes Brink's key investment highlights, including its leadership position in the cash management industry, strong new leadership, demonstrated results, global footprint, and growth strategy. Brink's strategic plan focuses on accelerating profitable growth through initiatives to improve operational excellence, introduce differentiated services, and pursue core and adjacent acquisitions to capture synergies and improve density. Financial targets through 2019 project increased adjusted EBITDA and decreasing leverage. Recent acquisitions are expected to contribute to growth.
The document discusses warning signs of distressed corporate situations and how addressing them early can create shareholder value. It notes that while some economies appear stable, the global economy is precariously balanced. Even good markets see corporate distress. The key is identifying issues quickly before restructuring. Boards must ensure viability and sustainability through accurate oversight. They should evaluate leadership, strategic plans, capital access, and consider advisors if management lacks relevant resources or ability to enact change. Addressing problems early through cost cuts, cash management and revised plans can help reverse declines before crisis measures are needed.
Strategies for Success in Risk Management of an International Trade Finance C...sophiaheartfield
International trade finance firms offer services that involve a complex network of cross-border transactions and activities. Businesses that engage in international trade face a number of risks that might affect their financial stability and profitability. Risk management is crucial in managing these risks and ensuring that trade finance transactions go smoothly.
The document discusses the global financial crisis of 2008 and its causes and effects. It states that the crisis was caused by a combination of factors, including easy credit policies, risky mortgage lending, misrated securities, and greed. This led to a housing bubble, collapse of major financial institutions, stock market crashes, rising unemployment worldwide, and slowed global economic growth. To prevent future crises, it recommends reforms like increased transparency, accountability, prudent risk management, and ethical standards in the financial industry.
This document discusses the results of a survey on financial crime programs in the Middle East and North Africa region. Some key findings include:
- 46% of respondents indicated a lack of confidence in their financial crime prevention programs.
- Compliance spending is expected to continue increasing over the next two years for 63% of respondents.
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- Support for anti-bribery/corruption programs remains relatively low compared to other programs like AML and fraud.
2. ACKNOWLEDGEMENTS
We gratefully acknowledge the efforts of our survey respondents and our forum
participants who took valuable time away from their day jobs to participate in
this work. We are particularly grateful to our research partner, CIBC, without
whom this study would not have been possible.
Christian Bellavance
Vice President, Research and Communications
Financial Executives International Canada
Copyright 2013 by Canadian Financial Executives Research Foundation (CFERF).
Nopartofthispublicationmaybereproduced,storedinaretrievalsystemortransmitted
in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without the prior permission of the publisher.
This report is designed to provide accurate information on the general subject
matter covered. This publication is provided with the understanding that the author
and publisher shall have no liability for any errors, inaccuracies, or omissions of this
publication and, by this publication, the author and publisher are not engaged in
rendering consulting advice or other professional service to the recipient with regard
to any specific matter. In the event that consulting or other expert assistance is required
with regard to any specific matter, the services of qualified professionals should be
sought.
First published in 2013 by CFERF.
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Toronto, ON
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ISBN# 978-1-927568-06-4
Foreign exchange risk management: Perspectives from financial executives
3. CONTENTS
Executive summary / 2
Methodology and demographics / 4
Defining and understanding FX risk / 5
Doing business in emerging markets / 8
FX risk in action: Who is in charge? How is performance measured? / 10
Canadian dollar parity: Boon or hindrance / 19
Conclusion / 20
Appendix A: Demographics / 22
Appendix B: Forum participants / 24
Appendix C: Glossary / 25
4. /2
Executive Summary
It is a common refrain in business today that the international strength of the Canadian
dollar, best illustrated by parity with the U.S. dollar today after flirting with 60-cent
territory a decade ago, is a competitive disadvantage to a trading nation such as ours. It
is clearly not a fatal disadvantage, given the international reach of many of our leading
companies. For most organizations, foreign exchange risk – and its management –
are challenges for which there exists an emerging and ever-more sophisticated set of
policies, procedures and tools.
Canadian businesses continue to adapt to an increasingly complex currency universe.
They cannot predict with any certainty the future value of the euro, Japanese yen or
even the U.S. dollar, but they can and do mitigate the risk of currency fluctuations with
proactive business practices supplemented with products such as swaps, futures and
options backed by well-thought out policies designed to ensure that they are not taking
on too much risk.
What is clear according to this study by the Canadian Financial Executives Research
Foundation (CFERF) is that foreign exchange risk is a major issue. In fact, 90% of
organizations surveyed rated foreign exchange management as an important
considerationintheirbusiness.However,justoveronehalfoforganizationsparticipating
in the survey have a policy or formal process/procedure in place to FX manage risk.
This would suggest that some organizations could benefit from a more structured
approach to managing their FX risk.
Canada’s status as a trading nation has created a generation of financial executives who
are keen currency watchers. Illustrating the critical role currency fluctuations can play
with regard to revenue and profit, four out of five respondents (80%) said that they track
foreign exchange by currency unit, either manually or with an automatic feed.
Managing foreign currency risk is no longer simply a case of guarding against changes
in the respective dollars of the U.S. and Canada. A surprising 42% of Canadian financial
executives surveyed said that they are now doing business in fast-growing emerging
markets, where currencies can be volatile or under strict government controls.
Foreign exchange risk management: Perspectives from financial executives
5. /3
Responsibility for managing FX risk generally lies near the top of Canadian businesses.
In the majority of cases the CFO, VP of Finance or Treasurer has direct responsibility for
controlling FX risk and many of those executives report directly to a board committee
charged with monitoring the business’foreign exchange exposure.
Canadian companies take a “do no harm” approach to FX risk management, borne out
by the stated goals of their FX hedging programs. Hedges are not created as speculative
bets with the hope or expectation of windfall gains out of currency fluctuations, but
are created instead to protect against short-term changes in exchange rates, provide
certainty for purchases and/or sales and short-term cash flows in home currencies or
neutralize the balance sheet impact on working capital and long term capital.
Organizations employ a sophisticated range of processes to mitigate exchange rate
impacts, such as diversifying their foreign currency holdings, adjusting selling prices in
response to exchange rate volatility, borrowing in foreign currencies and limiting longer
term contractual arrangements to lessen the impact of currency fluctuations.
Canadian businesses understand the risks that come with failing to insure against
possible foreign exchange shifts. Those include the potential for lower revenue and
profits, loss of market competitiveness, the potential for higher interest costs and
debt levels in a foreign market and the uncertainty that comes with controlled or
managed currencies.
Currency fluctuations are a serious concern for one in four of the survey respondents.
Negative effects range from a loss of competitiveness in a foreign market to shrinking
profit and sales to a reduction in reinvestment in the parent company.
Most financial executives have come to grips with changing international financial
regulations,basedonresponsestothesurvey.NearlyonehalfnowuseIFRS(International
Financial Reporting Standards) and are considering the implications of Basel III with
respect to foreign exchange.“We expect higher credit charges for longer tenor hedging
and a contraction of credit availability from our counterparties,”said one respondent.
Executive summary
6. /4
Foreign exchange risk management: Perspectives from financial executives
Canadian companies also managed the high volatility of foreign currencies versus the
U.S. dollar in the time after the collapse of Lehman Bros., one of the events that triggered
the international financial crisis. “Since 2008, we have increased hedge ratios, shortened
hedge tenors and spread out the rollover time frames to avoid large maturities in a
specific month,”explained one survey participant.
Foreign exchange risk management should be a component of a Canadian company’s
international growth strategy, but slightly more than one half of the organizations
surveyed have a policy, formal process or procedure in place to manage FX risk.
If Canadian companies are going to continue to grow – and play a larger role on the
international business stage – they must be able to utilize an expanding set of tools and
policies designed to manage, minimize and even prosper from foreign exchange risks.
The following pages provide valuable insight for companies seeking to establish their
own policies and procedures to deal with the risks of selling and buying products in
foreign markets and with operating in foreign currencies.
Methodology and demographics
The Foreign exchange risk management: Perspectives from financial executives report is
based on the results of an online survey that took place between November 26, 2012
and January 3, 2013, during which time 109 respondents completed the survey. These
results were expanded with insights gathered during an executive research forum that
included participants in Montreal, Toronto and Calgary on November 28, 2012. Of the
survey respondents, 50% worked for private companies and 37% for public companies.
42% of respondents were CFOs while 15% held the title of VP Finance. Four out of 10
(40%) represented companies with revenue of less than $50 million. See Appendix A for
more details on demographics.
7. /5
DEFINING AND UNDERSTANDING FX RISK
DEFINING AND UNDERSTANDING FX RISK
Foreign exchange risk management: Perspectives from financial executives seeks to
discover how organizations define and understand foreign exchange (FX) risk, and
what policies, procedures and financial instruments they utilize to manage the risk of
currency fluctuations.
Given the international nature of business today and Canada’s status as a trading
nation, foreign exchange is of increasing concern to most businesses today. Three
out of four respondents in the study reported that some percentage of their revenue
is denominated in a foreign currency and 17% reported that 76% to 100% of their
revenue is denominated in a foreign currency. One small marketing company, which
does most of its business in the U.S., looks upon the upward climb of the Canadian
dollar with dread.“We would rather have a 60-cent Canadian dollar,”said the VP Finance
of the company.“We primarily have U.S. net cash coming in and then all of our operating
needs are Canadian-dollar denominated.”
Ali Jinnah, Director of Financial Risk Management with Bombardier Inc., deals with
currencycomplexityonadailybasisasaresultofthetransportationgiant’sgeographically
dispersedmanufacturingoperations. “InourEuropeanrailoperations,wehaveproduction
facilitiesin60differentcountries,leavinguswithlargescaleFXexposuresinamultitudeof
currency pairs, both from a cost perspective and from the revenue side. On the aerospace
side, revenues are primarily in U.S. dollars, while our production facilities are in Canada,
Mexico and the U.K., resulting in a diverse mix of FX exposures for our cost base. To top
that all off, at the consolidated level we report in U.S. dollars.”
Export credit agency Export Development Canada noted in a recent foreign exchange
white paper that Canadian companies that are active in international markets view
volatility in the Canadian dollar as the number one constraint to growing exports. The
CFERF foreign exchange risk management study similarly found that organizations
consider the management of FX risk to be a critical task. More than two-thirds of
respondents (68%) rated foreign exchange management “extremely important” or
“important.”Just 10% rated FX management“not at all important.”However, only about
half actually had a policy or procedure in place to manage risk.
8. /6
FX risk can negatively affect cash flow and profitability both in the short and long
term. Changes of more than 5% in the value of the Canadian dollar relative to the U.S.
dollar are commonplace over any typical 60-day period. Viewed over the longer term,
the Canadian dollar has broken out of a narrow, stable trading band with the U.S. that
prevailed from 1994 until 2007. The financial crisis of 2008 resulted in three years of
extreme currency volatility, and risk.“The swings in the U.S.-Canada currencies became
very extreme,”said Mary Mulqueen, Managing Director of Foreign Exchange Sales with
CIBC. “So companies that aren’t addressing risk management would have experienced
that in a major way and would be feeling it now. 78% of our exports are still to the
U.S. and even for those companies that are expanding into Asia, most of their trade
is denominated in U.S. dollars. We expect that to change and evolve over time, but
currently the U.S. dollar is the key counterparty currency for Canada.”
Of the organizations that monitor currency risk, the majority track it the old-fashioned
way by manually entering currency values, with only a small minority utilizing an
automatic feed. “All our sales and the majority of payables are in USD,” said one
respondent.“A separate USD account is maintained. Profits are drawn from this account
and converted to CDN when beneficial.”
Virtually all organizations participating in the survey had some amount of payables
denominatedinaforeigncurrency.Nearlythreequarters(73%)had1-50%ofpayablesin
a foreign currency while 23% had more than half of their payables in foreign currencies.
“Mostly we deal in foreign countries, so Latin America, South America, Western Africa,
Mongolia,”said Allan MacDougall, Global Finance Director of mining contractor Dumas
ContractingLtd.“Wepaymostofourcostsinthelocalcurrencyandmostofourcontracts
are in U.S. dollars.”
Our company raised a significant amount of debt in the U.S., more than was actually
needed to fund our operations and our capital requirements down there. As a result, we
loaned a portion of those funds to our Canadian parent.The issue with that is then we
ended up with a U.S. dollar liability in Canada that had to be revalued and translated back
into Canadian dollars at the end of every month. So ultimately, this created a significant
amount of P&L volatility in our consolidated financial statements.
DeanLeskowski–ManagerofTreasuryandRiskManagement,CalfracWellServices
Foreign exchange risk management: Perspectives from financial executives
“
”
9. /7
DEFINING AND UNDERSTANDING FX RISK
Chart 1 – What Percentage of Revenue Comes
from A Foreign-Denominated Currency?
0% 5% 10% 15% 20% 25%
None 25%
1-5% 18%
6-15% 13%
16-25% 10%
26-50% 9%
51-75% 8%
76-100% 17%
10. /8
DOING BUSINESS IN EMERGING MARKETS
For years, experts have urged companies to lessen their dependence on the giant U.S.
market next door and expand their reach to new markets. Today that often means
higher-growth, higher-risk emerging markets such as China and Mexico. Survey
respondents are playing the emerging market card in a major way: 42% said they are
currently conducting business in an emerging market. Oil and gas services company
Canadian Oilfield Solutions Corp., having followed its customers across North America,
today finds itself in Mexico and accumulating a growing corporate account of pesos.
“We have a huge Mexican exposure,”said Gordon Travis, Canadian Oilfield’s CFO. “We’re
more or less addressing that on a country basis, as we’re there for the long term. For
transactions, we are reporting in U.S. dollars, which is something we conscientiously
decided to do a year and a half ago, because our focus is 100% U.S. and Mexico. As
it turned out under IFRS, that was a good decision. But the other issue is currency
transactions. We’re doing up to $10-15 million transactions, so we’re starting to look at
hedging the projects themselves.”
Companies are using a variety of strategies to manage their exposure to emerging
market currencies. The most popular strategy among survey respondents is the use of
a proxy currency such as the U.S. dollar, which was cited by 37% of respondents (see
Chart 2).
With emerging markets like Mexico, Poland, Eastern Europe, basic FX hedging can work there. I think where we have
the most challenges is in countries where there are controls on the currency.We started off doing non-deliverable
forwards to hedge our exposures. But the problem is that you don’t get to actually have these cash flows occur in the
local entity that is centered in this country.We’re now moving more and more towards onshore hedging, where we go
through the local FX market to hedge and are subject to all types of local government regulations and restrictions. In
certain situations, we have to literally account for every payment and every receipt with proper documentation so that
the local government will allow the funds to come in and out of the bank account.
Ali Jinnah – Director, Market Risk Management, Bombardier Inc.
Foreign exchange risk management: Perspectives from financial executives
“
”
11. /9
DOING BUSINESS IN EMERGING MARKETS
Chart 2 – How do you manage exposure
to emerging markets currencies?
0% 5% 10% 15% 20% 25% 30% 35% 40%
Other
Combination of a and b above
(please specify both emerging
market currency and proxy)
Deal directly in the currency
Products such as forward
contracts, non-deliverable
forward contracts, options
Use proxy e.g. USD, EUR, AUD 37%
22%
17%
15%
9%
Onenaturalresourcesrespondentsaidthatadelicatebalancingactcanallowforaquasi-
hedging strategy. “TZS (Tanzanian shilling) and NAD (Namibian dollar) are emerging
market currencies. We try to balance our cash and receivables in emerging market
currencies so that they roughly equal our payables in emerging market currencies.
Sort of an unofficial hedge. Our proxy for larger contracts is USD, which is also a foreign
currency for us, but is unhedged.” Another respondent takes the “go local” approach
with “a combination of using local currency as a natural hedge, purchases and sales in
the local currency. Net exposure is then hedged using forwards.”
12. /10
FX RISK IN ACTION: WHO IS IN CHARGE?
HOW IS PERFORMANCE MEASURED?
Ensuring that foreign exchange risk is adequately accounted for in Canadian companies
is clearly the purview of the finance department within organizations, based on
survey responses. More than half (54%) said that FX risks were the responsibility of the
CFO, followed by the VP Finance/Director of Finance (24%) and Treasurer (19%). The
remaining three respondents said the duty was handled by the CEO, a dual president/
CFO, and a treasury department consisting of a treasurer, two deputy treasurers and a
treasury manager.
While FX risk management in the end resides with one executive in an organization,
there is typically an oversight committee or board that will monitor compliance and
performance. Lida Sadrazodi, CFO of KUBRA, provides reports on the performance of the
privately owned communications management company at regular board meetings.“I
report on the currency gain or loss that we have had, comment and justify any hedging
or lack of it. I don’t normally have a specific direction by the board that I have to cover
the FX risk, unless there are material movements in US$, given our specific position. If I
have a specific recommendation, based on the circumstances, I bring it up to the board
and get their approval. Otherwise I do what sounds prudent, given the risk tolerance
of company.”
Larger organizations with more extensive international operations can have elaborate
programs and policies to deal with the uncertainties of foreign currencies.What they do
not always do, however, is to shield individuals from responsibility for their decisions.
“GE has a very, very large and very active treasury department that fully hedges GE’s
overall foreign exchange exposure and also offers a large number of products internally,
such as income hedging, position hedging, transactional hedging and so on. I can get it
all internally,”said Jim Fergusson, Vice-President of Finance, GE Railcar Services Canada.
“Once you get beyond that, it is the responsibility of the individual businesses and the
individual managers to hedge or not to hedge, to choose to take advantage of these
products, with the following backdrop, in terms of risk, we want to be able to forecast
Foreign exchange risk management: Perspectives from financial executives
13. /11
everything and have it be repeatable and consistent. There’s a lot of pressure to
ensure that you achieve those goals by hedging any foreign exchange exposure.”
Slightly more than one half (51%) of organizations participating in the survey have a
policy or formal process/procedure in place to FX manage risk. How those companies
measure their success in controlling FX risk varies widely. As one respondent explained:
“Marginsarecomparedtobudget,thegoalofourFXhedgingistopreservethebudgeted
margin, not to enhance margins. FX execution performance is measured relative to best
price available at time of execution.” Another survey respondent pointed to the all-too
real danger of viewing FX hedging as a potential profit-making exercise rather than one
of risk limitation. “We do not view the managing of FX risk as a profit center. We have
gone down that road but found that it incented risky behaviour. We spent a fair amount
of time defining the variables that define our FX risk (a mix of accounting and economic
FX risks) and put fairly tight limits around the risk.”
Organizations establish FX hedging policies to achieve unique outcomes based
upon their real and perceived risks. The most common purpose according to survey
respondents is to guard against short-term exchange impact (41%) with regards to
sales or purchases in foreign currencies (see attached chart). “A bit of all of the above,”
explained one respondent. “We spent a fair amount of time trying to find a balance
between the accounting and economic impacts of FX risk.”
FX RISK IN ACTION: WHO IS IN CHARGE? HOW IS PERFORMANCE MEASURED?
We have a formal policy which results in regular feedback to the Board. However, we also have a Management Committee,
which includes the Chairman, theVice-Chairman, President, COO, CFO, the SVPs that meets in the office every week. The result
is that certain members of our board are in the office almost every week. They’re very hands-on and knowledgeable about
keyTreasury activities.There is a considerable level of understanding of the various markets risks the company faces, whether
it’s FX, interest rates, commodity prices or other business risks at the highest levels of the company.
John McCoshen – Director ofTreasury, Canadian Natural Resources
“
”
14. /12
Foreign exchange risk management: Perspectives from financial executives
Chart 3 – Comparison between survey respondents with
and without formal FX risk management policies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Respondents with
no policy in place
Respondents
with formal FX risk
management
process or policy
Rated FX as
important or
extremely important
Track FX by
currency unit
80%
88%
55%
72%
5%
41%
43%
Conduct business
transactions in
emerging markets
Some interesting differences can be observed between those organizations which
do have a policy and those who don’t. Not surprisingly, Chart 3 highlights that 80%
of respondents with an FX risk management policy say their organization rates FX as
important or extremely important. However, a relatively high number of respondents
– more than half – with no policy in place still say FX risk management is important or
extremely important at their organization. It was interesting to note that despite the
differences in the level of importance assigned to FX between the two groups, both
groups had about the same proportion conducting business transactions in emerging
markets (41% and 43%, respectively).
15. /13
FX RISK IN ACTION: WHO IS IN CHARGE? HOW IS PERFORMANCE MEASURED?
0% 20% 40% 60% 80% 100%
Monte Carlo simulation
Sophisticated approaches
(including statistical procedures
and stress tests)
Sensitivity analysis
Simple scenario analyses
Translating foreign
currency balances
Aggregating actual or
forecasting transactions
in foreign currencies
Respondents without an FX policyRespondents with an FX policy
100%
68%
61%
26%
47%
25%
45%
25%
5%
2%
2%
3%
Chart 4 – Do you regularly quantify foreign
exchange risk by doing any of the following?
Somedifferencesemergewhenthetwogroups’methodsofquantifyingriskarecompared
(Chart 4).Those respondents with FX risk management policies and procedures are more
likely to engage in quantification activities such as simple scenario analyses, sensitivity
analyses, and aggregating actual or forecasting transactions in foreign currencies (100%
of those with FX policies versus only 25% of those without such policies). Those with
policies are slightly less likely to use simpler methods such as simply translating foreign
currency balances.
16. /14
At many organizations, FX risk management and hedging policies have grown more
sophisticated and international operations have expanded while currency concerns have
grown.StephenDyer,CFOofAgriumInc.,hasseenthefertilizermaker’sstrategygrowmore
formalized and sophisticated as the company’s operations have spilled beyond Canada’s
borders.“Wehaveapolicyinplacewithourboardthatismorewhatyou’reallowedtodo,it
doesn’t dictate what you have to do.We also have a financial risk committee that’s looking
across all of our financial risks, including the FX component. It looks at what financial risks
are coming at us, what our strategy is and projects we have. It meets quarterly and reports
to our audit committee, and that committee also has operations updating them on what’s
going on with their business and what they see as their financial risks as well.”
Foreign exchange risk management: Perspectives from financial executives
Chart 5 – Purpose of FX hedging policy
Other
Neutralize balance sheet impact on working
capital and long-term capital (including debt)
Give certainty to exchange rate impact
on purchasing and/or sales and short
term cash flows in home currenciesmpany).
Mitigate short-term exchange impact
(e.g. Six, 12 or 18 months) from sales or
purchases in foreign curriencies.
38%
19%
13%
30%
17. /15
“Having a board with the ultimate responsibility for risk management rather than just
the organization’s officers sounds realistic in theory, but only works in practice if directors
havesomeknowledgeofforeignexchangerisksandtechniquesandstrategiestomitigate
them”, noted Gordon Travis, CFO of Canadian Oilfield Solutions Corp. “Organizations’
biggest issues have been around the expertise to put accountability for risk on the board.
The issue usually is, do board members understand or have the time to understand what
they are now being mandated to address? I think there is actually a mandate for the board
to strategically know, understand and address foreign exchange risks.”
FX RISK IN ACTION: WHO IS IN CHARGE? HOW IS PERFORMANCE MEASURED?
Chart 6 – Deciding factors whether or not to manage FX exposure
0% 10% 20% 30% 40% 50%
Creditworthiness of financial institution/counterparty
(bank, credit union, FX boutique, etc.
Role of audit and/or finance committees
FX as a profit centre
Access to credit to suppor a hedging program
Industry specific practices
Accounting guidelines
Sufficient resources to manage a hedging program
Level of knowledge and access to advice 43%
42%
28%
23%
20%
17%
15%
13%
18. /16
In light of the international financial crisis of 2008-2009, an assessment of the strength
of organization’s key financial lenders may be an area of scrutiny. That is fast becoming
a standard reporting category for Bombardier Inc., said its Director of Financial Risk
Management, Ali Jinnah.“One thing we also report to senior management is our overall
counterparty exposure, including the marked-to-market position of our FX, interest
rates and commodity derivatives as well as any deposits we may have with a given
counterparty. We’ve also set risk limits per institution based on credit ratings and risk,
which we look at closely.”
For Canadian companies that regularly sell their goods and services internationally and
get paid in a foreign currency, a clear risk exists that by the time they are paid, exchange
rates will change and they will end up receiving less in Canadian dollars than when they
agreed to the deal in the first place. Called transaction exposure, this type of FX risk is the
one that companies with foreign operations focus most on mitigating.
Survey respondents said that they utilize a variety of FX instruments to mitigate risk, the
most common being forward contracts, foreign exchange swaps and currency options
or a blend of the three. “Vanilla forward purchase FX contracts are the only thing we
Foreign exchange risk management: Perspectives from financial executives
We have what we call a risk management policy that was approved by the board
and is reviewed on a yearly basis.That risk management policy is fairly tight; it’s
mostly hedging 100% of FX risk. On the interest rate side we have a range of 60 %
to 100 % of fixed rate. Currently most of our debt is fixed and we see no incentive
to move to floating rate debt.We report on a quarterly basis what are the levels
and confirm to the board that we’re respecting the risk management policy.
Pierre van Gheluwe –Treasurer,Yellow Media Inc.
”
“
We don’t have a formal process in place. Any new relationship or instrument that
we’ve entered into is reviewed and approved at the board level before we embark on
a new tactic but its not a formally documented process.We don’t surprise anybody
with new ways of doing things until we’ve had some input from the entire board.
Bill Cummins – CFO of Petromanas Energy Inc.
”
“
use,” said one survey participant.
“Other more exotic options are
available to us, but we do not use
them.”Anothersurveyrespondent
said their firm’s strategy employs
“FX spot and forward exchange
contracts, FX swaps, foreign
currency borrowing and lending
for fixed terms.”
19. /17
FX RISK IN ACTION: WHO IS IN CHARGE? HOW IS PERFORMANCE MEASURED?
“The structure of the company, public or private, will also play a role in what mix of
FX risk mitigation products they use,” observed Mary Mulqueen. “A public company is
more likely to use a product that gets what we call hedge accounting treatment, so that
they don’t have volatility in their revenue every quarter based on marking their hedges
to market. In private companies, they may use a variety of structured products, which
are options based products that give them the certainty of a worst case price to protect
their margins or budgets while allowing for participation in a favourable market move.”
0% 10% 20% 30% 40% 50%
Other
Foreign exchange swaps
Currency options (vanilla options or structures)
Futures contracts (Exchange traded contracts that allow you to
buy or sell a currency at a set exchange rate in a given
month; can be closed out before settlement date)
Forwards (OTC agreements to buy or sell a given amount
of a currency at a set exchange rate on a specific future date) 41%
23%
13%
8%
15%
Chart 7 – Financial instruments or products used to mitigate risk
20. /18
Interestingly, those organizations with a formal FX policy in place are far more likely to
use products such as forward contracts, non-deliverable forward contracts and options
(see Chart 8).
Foreign exchange risk management: Perspectives from financial executives
Combination of dealing in
currency and using proxy
Deal directly in the currency
Products such as forward
contracts, non-deliverable
forward contracts, options
Other
Respondents with an FX policy Respondents without an FX policy
Use proxy eg USD, EUR, AUD
35%
35%
39%
22%
22%
8%
9%
13%
9%
8%
Chart 8 – How do you manage exposure
to emerging markets currencies?
21. /19
Canadian dollar: parity, boon or hindrance?
Canadian dollar: parity, boon or hindrance?
The march to parity of the Canadian dollar with the U.S. greenback has made it more
difficult for some to compete internationally while on the other hand it has lowered the
cost to invest and upgrade foreign-sourced capital equipment.
Currencyfluctuationsareatwo-edgedswordforcompanies,howevermostorganizations
surveyed said that currency fluctuations have not changed their competitiveness within
their industry. Three-quarters said they were unaffected while the remainder reported
that changes in currency values have hurt their business. “In the aerospace business
segment, revenues are in USD while most of our costs are in CAD, the rising CAD has
made our competitive position more difficult,”said one respondent.
Many of those who reported a negative impact from currency fluctuations referenced
the rise of the Canadian dollar against the U.S. dollar and its negative impact on revenue.
U.S.-Canada parity has had other unwanted effects.“[It has] significantly reduced profits
and resulted in reduced reinvestment in the company to maintain our competitive
position,”reported one respondent, while another said currency changes have“lowered
profits in the foreign country and have attracted competitors to the domestic market.”
The dominance of the U.S. dollar in international trade is not always a negative in the
experience of Danielle Parent, VP of Finance Platform Products Group with Fujitsu
America. The Canadian unit of the Japanese office product maker found itself at a
disadvantage as its competitors’ products were priced in U.S. dollars while it priced its
product lines in Canadian dollars.“Our pricing people had trouble following the market
because the dollar was so volatile. So I worked closely with the sales and marketing
people and we decided that why not sell in U.S. dollars like our competitors, therefore
we don’t have to address our pricing in Canadian dollars on a daily basis to cope with
the volatility of the dollar. That has been a perfect edge for us. The product mix has
evolved over the years, however we still have a few lines of product that we sell in U.S.
dollars which is helping us create a natural hedge since products are purchased from
the factory in U.S. dollars. And when the GST came into play, that was a bonus for us,
because it sort of made the spread even bigger.”
22. /20
CONCLUSion
Foreign exchange risk management: Perspectives from financial executives shows that
Canadian companies are embracing the need to expand their businesses beyond our
borders and deal with whatever currency risks that come with that strategy.
Companiesneedtoseerewardsaswellastheriskswithforeignexchange.Astheparticipants
intheExecutiveResearchForumandsurveyrespondentshighlighted,Canadianbusinesses
are tackling the issues around foreign currencies with increasing sophistication. ”FX in the
form of foreign currency transactions, i.e. payables and receivables, is an integral part of
more and more Canadian businesses today,”said Mary Mulqueen.“As a result, FX is getting
a much higher profile, whether it be from the news media or just internally, as businesses
have to rely on global connections to survive and thrive. The focus on emerging markets
like Latin America and Asia has opened up new opportunities for Canada as these
countries seek natural resources for industrial and infrastructure development. Foreign
exchange can materially impact businesses’competitive advantage or put them at a real
disadvantage if they aren’t aware of their risks or don’t handle them effectively because
that impact goes directly to the bottom line.”
The research shows that foreign exchange risk management is taken seriously. In most
cases, it is the direct responsibility of senior financial executives who report the results
of their policies and programs to the entire board of directors or to a board committee.
Managing foreign currency risk is only going to grow more complicated in the future
as Canadian business strive to lessen their dependence on traditional U.S. markets and
set their sights on developing markets such as those in Asia, South America or Africa.
Even mature markets such as Europe present heightened complexity and risk, given the
serious sovereign debt and currency issues in the European Union.
Businesses have taken a very serious approach to FX risk programs such as hedging.
Rather than consider hedging as a potential profit centre, hedges are created as
defensive foreign currency “insurance policies” to guard against short-term currency
shifts or long term threats to corporate capital.
Foreign exchange risk management: Perspectives from financial executives
23. /21
CONCLUSion
Foreign exchange risk management needs to be part of a Canadian company’s
international growth strategy. As only half of the organizations surveyed have a
policy, formal process or procedure in place to manage FX risk, others should follow
their example. A close examination of practices of those who have FX policies shows
that having such a policy in place is associated with placing a greater importance on
FX risk management in the organization, employing more sophisticated methods of
quantifying risk, and a higher likelihood of using products such as options and forward
contracts. Further study of organizations’ best practices in FX risk management would
shed more light on the effectiveness of their strategies and tactics.
24. /22
Foreign exchange risk management: Perspectives from financial executives
Appendix A: Demographics
Other
Not-for-profit organization
Government agency
Publicly traded company (including a
subsidiary of a public company)
Privately-held company
2%
8%
37%
50%
3%
Position title
Controller
VP Finance
Chief Financial Officer
Finance Director
Treasurer
Other
Owner/Founder
4%
6%
10%
6%
15%
42%
17%
corporate structure
$1 billion or more
$500 - $999 million
$100 - $499 million
$50 - $99 million
Less than $50 million
40%
13%
22%
8%
17%
annUal revenue
25. /23
Appendix A: Demographics
Industry Classification
0% 5% 10% 15% 20%
Other
Management of companies and enterprises
Arts, entertainment and recreation
Telecommunications
Health care and social assistance
Construction
Other services (except public administration)
Retail trade
Transportation and warehousing
Agriculture, forestry, fishing and hunting
Utilities
Wholesale trade
Finance and insurance
Professional, scientific and technical services
Manufacturing
Mining, quarrying, and oil and gas extraction 18%
14%
10%
9%
8%
6%
5%
5%
5%
4%
4%
3%
3%
3%
2%
1%
26. /24
Foreign exchange risk management: Perspectives from financial executives
Appendix B: Forum Participants
Forum Chair: Michael Conway – Chief Executive & National President, FEI Canada
Moderators: Christian Bellavance – VP, Research & Communications, FEI Canada
Mary Mulqueen – Managing Director, Foreign Exchange Sales, CIBC
Calgary Bill Cummins – CFO, Petromanas Energy Inc.
Participants: Stephen Dyer – EVP & CFO, Agrium Inc.
Jim Fergusson – VP Finance, GE Railcar Services Canada
Chris LeBlanc – Executive Director, Foreign Exchange Sales, CIBC
Dean Leskowski – Manager, Treasury and Risk Management, Calfrac Well Services Ltd.
John McCoshen – Manager, Treasury, Canadian Natural Resources Limited
Grant McNeil– VP Finance, Ian Murray & Company
Jerry Pratt – Executive Director, Foreign Exchange Sales, CIBC
Bill Ross – VP, Finance, Enbridge Pipelines
Gordon Travis – CFO, Canadian Oilfield Solutions Corp.
Craig Werbicki – Director, Commercial Banking Calgary, CIBC
Toronto Jonathan Burkhead – Director, Treasury Operations, OpenText Corporation
Participants: Hanif Ladha – VP Financial Planning and Operations Support, G4S Cash Services (Canada) Ltd.
Allan MacDougall – Global Director of Finance, Dumas Contracting Ltd.
Don Mikolich – Executive Director, Corporate Solutions, CIBC
Danielle Parent – VP, Finance & Administration, Fujitsu Canada, Inc.
Derek Petridis – VP, Finance, Shikatani Lacroix Design Inc.
Lida Sadrazodi – CFO, KUBRA
Montreal Andrew Antoniadis – Associate VP, CIBC Commercial Banking, Quebec Region
Participants: Ali Jinnah – Director, Market Risk Management, Bombardier Inc.
Jessica Lawson – Director, Foreign Exchange Sales, CIBC
Pierre Van Gheluwe – Treasurer, Yellow Media Inc.
Observers: Paul Brent – Writer, Donohue Brent Training and Consulting
Melissa Gibson – Communications & Research Manager, FEI Canada
27. Floor
USD/CADCap
/25
Appendix C: Glossary
Appendix C: Glossary
Indicative terms & conditions:
• Client position: Sell USD / Buy CAD forward
• Expiry date: 1 month
• Strike: 1.0205 CAD per USD
• Notional: US$ 10,000,000
• C$ 10,205,000
• Premium: none
Indicative terms & conditions:
• Client position: Sell USD / Buy CAD Forward
• Expiry date: 1 month
• Cap: 1.0475 CAD per USD
• Floor: 1.0000 CAD per USD
• Notional: US$ 10,000,000
• Premium: none
Example of FX collar – USD seller
• A collar (also known as a risk reversal) provides a client with
a protected rate and a best case rate for a given date in the
future.
• Client participates fully in movements between the protected
rate (floor) and best case rate (cap).
• Cap and floor are typically selected so there is no upfront
premium.
Example of outright forward – USD seller
• Allows a client to lock-in a foreign exchange rate at which
they can sell on a given date in the future.
• As such, all uncertainty associated with foreign exchange
movements will be nullified.
• However, the client will not be able to benefit from a
favourable move in the spot market.
• Valid hedging instrument for“certain”cash flows.
USD/CAD seller
USD/CAD seller
Spot ref.: 1.0200 CAD per USD
1-month forward ref: 1.0205 CAD per USD
Spot ref.: 1.0200 CAD per USD
Strike
USD/CAD
Analysis:
• Full protection against USD depreciation below the floor
• Full participation between the floor and cap
• No participation in USD appreciation above the cap
• No upfront premium
28. /26
Foreign exchange risk management: Perspectives from financial executives
Indicative terms & conditions:
• Client position: Buy USD / Sell CAD forward
• Expiry date: 1 month
• Strike: 1.0260 CAD per USD
• Notional: US$ 10,000,000, if above strike
• US$ 5,000,000, if below strike
• Premium: none
Analysis:
• Full protection against an appreciation of the USD
• Partial participation in a depreciation of the USD
• Higher strike compared to an outright forward
Indicative terms & conditions:
• Client position: Buy USD / Sell CAD forward
• Expiry date: 3 months
• Strike: 1.0275 CAD per USD
• Conditional trigger: 1.0045 CAD per USD
• Notional: US$ 10,000,000
Analysis:
• Full protection against an appreciation of the USD
• Full participation in a potential depreciation of the
USD down to the conditional trigger
• Zero upfront premium
• Initial give up of 50 pips relative to the outright
forward for a potential 180 pips participation
• Hedge accounting friendly
Example of at-maturity variable rate forward – USD buyer
• Designed to offer clients protection at a known worst case
rate while providing the client with the ability to participate
in a potential favourable move in spot to the pre-determined
conditional trigger.
• Only if spot USD/CAD is below the conditional trigger at
maturity, will the client be required to buy USD/CAD at the
pre-agreed strike rate.
• Tradeoff for client is agreeing to a slightly higher Strike upfront
compared to the outright forward in exchange for the potential to
participate in favourable move in spot to the conditional trigger.
Example of participating forward – USD buyer
• Allows a client to lock-in a foreign exchange rate at which
they can buy on a given date in the future.
• Amount of USD the client has the right to buy exceeds the
amount of USD the client is obligated to buy.
• Strike is higher than an outright forward in exchange for
potential to benefit from a favourable move in the spot
market on part of the notional.
USD/CAD buyer
USD/CAD buyer
If spot fixes below Conditional
Trigger, client buys USD/CAD
at the Strike rate
3-month forward ref: 1.0225 CAD per USD
Spot ref.: 1.0200 CAD per USD
1-month forward ref: 1.0205 CAD per USD
Spot ref.: 1.0200 CAD per USD
Strike USD/CAD
Conditional Trigger
Strike USD/CAD
29. /27
Appendix C: Glossary
Definitions:
Spot transaction: Single outright transaction involving the exchange of two
currencies at a rate agreed on the date of the contract for value or delivery
(cash settlement) within two business days.
Outright forward: Transaction involving the exchange of two currencies at a
rate agreed on the date of the contract for value or delivery (cash settlement) at
some time in the future (more than two business days later). This category also
includes non-deliverable forwards and other forward contracts for differences.
Foreign exchange swap: Transaction which involves the actual exchange of
two currencies (principal amount only) on a specific date at a rate agreed at the
time of the conclusion of the contract (the short leg), and a reverse exchange
of the same two currencies at a date further in the future at a rate (generally
different from the rate applied to the short leg) agreed at the time of the
contract (the long leg).
Non-deliverable forward: A cash-settled, short-term forward contract on a
thinly traded or non-convertible foreign currency, where the profit or loss at the
time at the settlement date is calculated by taking the difference between the
agreed upon exchange rate and the spot rate at the time of settlement, for an
agreed upon notional amount of funds.
Currency option: Option contract that gives the right to buy or sell a currency
with another currency at a specified exchange rate during a specified period.
This category also includes exotic currency options such as average rate
options and barrier options.
30. Foreign exchange risk management: Perspectives from financial executives
THE CANADIAN FINANCIAL EXECUTIVES RESEARCH FOUNDATION (CFERF) is the
non-profit research institute of FEI Canada. The foundation’s mandate is to advance the
profession and practices of financial management through research. CFERF undertakes
objective research projects relevant to the needs of FEI Canada’s 1,800 members in
workingtowardtheadvancementofcorporateefficiencyinCanada.Furtherinformation
can be found at www.feicanada.org.
FINANCIAL EXECUTIVES INTERNATIONAL CANADA (FEI CANADA) is the all industry
professional membership association for senior financial executives. With eleven
chapters across Canada and 1,800 members, FEI Canada provides professional
development,thoughtleadershipandadvocacyservicestoitsmembers.Theassociation
membership, which consists of Chief Financial Officers, Audit Committee Directors and
senior executives in the Finance, Controller, Treasury and Taxation functions, represents
a significant number of Canada’s leading and most influential corporations. Further
information can be found at www.feicanada.org.
CIBC is a leading Canadian-based financial institution serving 11 million clients in
Canada and around the world. Through CIBC Commercial Banking, we offer a unique
client experience to mid size businesses, with flexible business solutions, dedicated
business expertise, and timely business advice that helps our clients succeed. More
than 400 CIBC Commercial Banking relationship managers from coast to coast meet
the needs of business owners and executives at over 20,000 companies in 75 sectors.
We have the expertise to deliver integrated financial solutions that are right for our
clients and address their business needs at every stage of their company’s development
and operation. Further information can be found at www.cibc.com.
/28
31. Canadian financial executives research foundation
Corporate DONORS:
GOLD ($10,000 +):
Husky Energy Inc.
Bell Canada
SILVER ($5,000-10,000):
Agrium Inc.
CGI Group Inc.
Imperial Oil Ltd.
BRONZE ($1,000-5,000):
Canadian Western Bank Group
Open Text Corporation
PotashCorp
FEI Canada’s Research Team:
Michael Conway – Chief Executive & National President
Christian Bellavance – Vice President, Research & Communications
Laura Bobak – Senior Writer
Melissa Gibson – Communications & Research Manager
Paul Brent – Writer
/29
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Toronto, ON M5H 3B3
T 416.366.3007
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