How Can CFOs Avoid Economic Uncertainty Shocks Affecting Forex Exposure?

How Can CFOs Avoid Economic Uncertainty Shocks Affecting Forex Exposure?

06 Sep 2019 04:04 PM

Global economy gets driven by a number of factors that affects the entire market in good as well as bad shape. When the market is at bad shape, it forecasts a volatile situation where traders are confused to trade forex. Right now, it would not be wrong to say that it seems like the prolonged era of economic and regulatory volatility is high due to Brexit and ongoing trade war between China and the US. Thus the immediate effect that we are seeing is commodity and currency prices at depressing state impacting trade flows across the globe.

This makes the work of CFO’s ever more strenuous as at such kind of situations businesses need to employ a clear strategy on how to minimise the risk of currency fluctuations impacting the business as well as manage currencies that they trade.

In order to effectively navigate through global uncertainty, business leaders these days have started to increasingly value decision making advisory support and analysis to manage corporate finance adequately. CFOs of most corporate entities are sharpening their skills to assess any kind of economic risks and learn on the mitigation processes by implementing the right processes and tools to keep them agile in any kind of situations. An active forex risk management strategy has to be an integral part of all financial and operational business processes.

Tracking Underlying Risks in the Global Market

Risks in the forex market emerge out of political, economic and societal uncertainty occurring across the world. As far as measures to mitigate risks are concerned, there is no common, agreed upon measure to assess risk. However, the general path that forex technical experts adopt to come up with risk mitigation strategy is to evaluate both the likelihood of an event and its potential impact so as to navigate global import and Export Exchange Rate volatility.

Corporate finance departments need to determine the likelihood of an occurrence, looking at the probability of a potential political, economic or social event as well as considering the potential speed of onset. Some countries have a stable political environment either because it appropriately represents the opinion of the population or because the government secures its re-election by different means.

Beyond assessing the likelihood of an occurrence, CFOs and corporate finance professionals also need to think about the impact and look for ways to minimize exposure. There are indicative effects of every global event and forex signals indicating the technical aspects of forex movements which CFOs need to evaluate so as to track global volatility- including commodity prices, exchange rates and other vulnerabilities that affect the currency rates in the forex market. In general, financial planning, forecasting and treasury/financial risk management are most commonly impacted by economic volatility.

The banks rarely provide end-to-end advisory to the MSMEs and Corporate on the FX market or international payment/receipt mechanisms. For the MSMEs receiving guidance in this area is of utmost importance as exposure to currency fluctuations can significantly impact the proportion of business activity. CFOs can however in collaboration with a specialist add value and take timely steps to safeguard company’s forex exposure meeting the shocks of currency fluctuations.

It is important that CFOs and corporate treasurers are flexible to adoption of Foreign Exchange and Risk Management strategies. If Corporate do not have an in house team of experts to assist the CFOs in this regard, hiring Forex Advisory firm like Myforexeye can bring all the difference. Advisory assistance can help MSMEs and Corporate to protect foreign exchange risk by increasing currency hedges, raise cash holdings and carefully evaluate the credit quality of trade partners to minimize the impact wherever possible.

Further, Consulting firms help CFOs and company treasurers stay relaxed by streamlining risk management administrative tasks to a large extent. These firms also help corporate to saty up to date by using latest technology assistance to curb risks and save on costs.

Unfailing Attention Devoted on Operations

These days, a common practice adopted by finance organizations is to embed compliance monitoring directly into the transactional system so as to keep pace with real-time transaction processing. This has helped organizations because they are able to constantly monitor things to take real time decisions. With core compliance getting centralized and automated, CFO’s can focus on collaborating effectively with the risk-management function and work towards shared goal of protecting the brand. By opening lines of communication between forex consulting firms and in house team from the finance departments, enterprises are able to take objective decisions related to supplier and credit risk.

Foreign Currency Arbitrage

Put simply, arbitrage is the simultaneous and instant purchase and sale of a currency for a profit. Earlier, arbitrage was a taxing process altogether which now has become easier due to the advancements in technology. Now, trading systems captures even the slight differences in price, so seeing such trends in line, one can execute transactions in seconds. Further, CFO’s can now use App or web technology to check exchange rate, identify potential differences and execute transactions, all within seconds.

Bottom Line

In order to take smarter and swift decisions, it is extremely important to be patient and involve expertise in the field. This is an emphasising fact as teams within the finance organizations will undoubtedly be impacted by market volatility. So discussing vital steps with a trusted forex advisor is the most needful thing for organizations at such situations as the steps taken after such discussion is balanced and purely on technical analysis and market movements.

Further, with technology disruptions taking speed at a tremendous pace, it is important that corporate start enjoying the benefits of flexible platforms that support in greater process automation. Digitization has reached the next level and CFO’s can find a rage of new technologies such as cloud computing that make real-time insights a reality. At the end of the day, by leveraging the right tools, agile companies will be able to have the live insights to make rational and smarter decisions at any kind of market situation whether it is volatile or one that is favourable.

Please, get in touch with our support team for more information on how our in built smart technology and Forex Advisory Services can support your organizations meet its inward and outward forex transactions needs.

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