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The intensifying FX challenges for Corporates - the MillTechFX 2022 Survey

Corporates
Currency management
FX volatility
Hedging
Survey

Posted by MillTechFX

'3 min

19 October 2022

19 October 2022

London, 19th October 2022 – A new report from FX-as-a-Service pioneer, MillTechFX, has found that recent currency volatility is ramping up pressure on senior-finance decision makers at corporates, forcing many to adapt their risk management practices.

The report entitled ‘MillTechFX CFO FX Survey 2022: The intensifying FX challenges for corporates’, carried out by Censuswide, found that nearly three out of five (59%) corporates have experienced increased FX risk as a result of heightened volatility. Meanwhile, 89% of corporates that do not have a formal hedging strategy in place are now considering introducing one.

It also revealed that the majority of senior finance decision makers’ current hedge ratio is over 50% and the average hedge ratio is 56%, while the average tenor of hedges was five months. This indicates corporates are balancing their valid concerns around profit erosion with the need to be nimble in the face of fragile supply chains, weakening consumer demand and rising inflation.

  • 59% of corporates say that heightened volatility has increased their FX risk
  • 89% of corporates that don’t currently hedge FX risk are now considering doing so
  • 89% of corporates are looking into new technology/platforms to automate FX operations

Furthermore, in response to market volatility, 40% of respondents said they are considering increasing their hedge ratio, while 33% shortened the tenor of their hedging instruments to remain flexible in the face of mounting headwinds and uncertainty.

Other findings include:

  • Execution challenges - 43% of corporates cite getting comparative quotes as the most challenging aspect of their FX operations. This was followed by demonstrating best execution (37%).
  • Manual processes – 65% are still using manual execution process: over a third (36%) still primarily use email for instructing financial transactions and 29% relying on phone calls.
  • Resourcing - Corporate treasury teams spend 1.85 days days per week on FX-related matters and over 50% of treasury teams have three or more people tasked with FX activities.
  • Below par FX setup - Over a third (35%) rate their FX set up as below average or worst-in-class.
  • Move to automation - 89% are looking into new technology and platforms to automate their FX operations, while 35% say that automation of manual processes is the most important factor in terms of FX management.

Eric Huttman, CEO at MillTechFX, comments: “In the post-pandemic economic environment, it is clear that senior finance decision-makers at corporates are faced with an evolving set of challenges. Despite the threat of rising volatility to corporates’ bottom lines, our findings highlight that many still rely on manual process and lack necessary tools to try to mitigate this risk.

Many corporates are adapting by shortening the tenor of their hedges and are hedging more of their exposure in a bid to protect their balance sheets, whilst maintaining a greater level of flexibility in their hedging programmes. Looking ahead to the rest of 2022 and beyond, we would encourage firms to get the right processes in place now and seek alternative technology-driven solutions that can help them achieve best execution and protect their business during these turbulent times.”

To learn more about the FX challenges facing corporates as well as the hedging strategies and solutions they are implementing, read the full report here.

 

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