The CFO Checklist 2024

With over 80 countries heading to the polls this year, businesses may be facing uncertainty on the impact geopolitics will have on their forex trading.

In times of adversity, businesses come under increased pressure and the lessons learned in stormy seas will often sharpen the focus on how a company’s finance function could evolve during calmer waters.

Taking into account the recent treasury reports published we take a look at how choosing the right FX partner can help achieve what many CFOs consider their key strategic priorities.

In this blog:

• Hedging FX risk
• FX financial risk management
• Automation, digitisation and outsourcing FX
• Environmental, Social and Governance (ESG)
• Forming the right relationships

Hedging FX risk

If the past 5 years have taught us anything, it is to plan for improbable outcomes. Geopolitical events, like the upcoming elections or severe market shocks, like the pandemic, can have a huge impact on currency markets. If a business finds itself on the wrong side of an FX market move whilst unhedged, it can lead to significant losses.

Despite that, when it comes to currency markets, some CFOs still adopt a wait and see approach and try to hold out covering their FX requirement until market conditions are more favourable.

Our recent Corporate CFO research revealed that only 67% of EU corporates hedging their forecastable currency risk, compared to 70 in the UK and 81 in the US.[i][iii]

Forecasting and visibility has undoubtedly impacted many businesses ability to hedge accurately, but CFOs should aim to ensure they are managing known risks when they can, and do away with opportunistic hedging so bottom lines aren’t left exposed to FX market volatility.

 

FX financial risk management

In tough times liquidity is precious, whether that’s a company's own funds or maintaining sufficient headroom on working capital facilities. Cash and liquidity management are one of the biggest challenges faced by corporate treasurers today. [ii]

Businesses should explore ways to eliminate unforeseen demands on free cash flow, and one such demand might arise from financial risk management.

For example,  corporates may have to post collateral against FX hedges in the form of initial or variation margin. After posting cash collateral with an FX counterparty this capital is essentially dormant; it isn’t earning a return for the company and can’t be accessed at times when they might need it most.

CFOs should explore hedging solutions that are margin free and don’t pose a threat to free cashflow.

 

Automation, digitisation and outsourcing FX

Greater operational scale and complexity of a business is amongst one of the top three challenges faced by corporate treasurers today.

Against the backdrop of many businesses adopting a hybrid-remote working style since the pandemic it’s easy to see why 78% of corporates throughout the EU are looking into new technology and platforms to automate their FX operations. Treasury teams may want to do-away with manual processes to minimise errors whilst working remotely [i]

CFOs should explore centralised, digitised and real-time FX solutions that the team can access and reference.

With US and EU Corporates spending on average over 2 days and on FX-related activities, CFOs can even look to fully outsource their FX requirement [i][iii]

This not only frees up capacity and lets the team focus on other issues, but could simultaneously improve the quality of your firm’s FX execution when it's managed by specialists.

 

Environmental, Social and Governance (ESG)

81% of treasurers have an ESG policy in place or state that ESG is now being incorporated into decision making [iv].

ESG is becoming increasing important for corporates forming relationships with external providers. Our recent research revealed that ESG credentials impact selecting FX counterparties in 92% of EU and 97% of US corporates. [i][iii]

Before ESG-linked derivatives go mainstream, CFOs might want to explore forming relationships with banks, and other service providers, who are aligned with their company’s own ESG priorities.

 

Forming the right relationships

Bank relationship management is central to any businesses achieving their goals and 42% of corporate treasurers are considering bank rationalisation i.e., having fewer bank accounts to help streamline processes [iv].

CFOs clearly must consider how their external relationships can help them manage FX risk more effectively, but historically this might have meant bringing more banks into the mix rather than fewer.

A possible solution might be to explore multibank execution solutions that offer all the competitive benefits of more banking relationships, without the operational drag.

 

How MillTechFX can help

MillTechFX by Millennium Global is the FinTech affiliate of Millennium Global Investments, one of the largest specialist currency managers globally. Our multi-bank market helps institutional investors and managers significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.   

We provide access to a transparent marketplace for comparative FX execution from up to 15 counterparty banks, while harnessing a unique and significant pricing efficiency for our clients.

Find out more about our FX hedging solutions here.

 

[i]The MillTechFX European Corporate CFO FX Report 2024 | MillTechFX

[ii] https://www.pwc.be/en/news-publications/2023/global-treasury-survey-2023.html

[iii] The MillTechFX North America CFO FX Report 2023 | MillTechFX

[iv] https://www.pwc.be/en/fy24/documents/global-treasury-survey-2023.pdf