The vast majority (90%) of financial executives surveyed rated foreign exchange (FX) management as an important consideration in their business, according to a new survey by the Canadian Financial Executives Research Foundation.
However, almost half of organizations participating in the survey indicated that they did not have a policy or formal process/procedure in place to manage FX risks.
“This would suggest that some organizations could benefit from a more structured approach to managing their FX risk,” says Michael Conway, chief executive and national president of Financial Executives International Canada. “This is proving even more important as Canadian companies are moving into foreign markets to generate growth.”
Managing foreign currency risk is no longer simply a case of guarding against changes between the U.S. and Canadian dollar. In fact, 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.
FX risk can negatively affect cash flow and profitability both in the short and long terms. Changes of more than 5% in the value of the Canadian currency 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 to 2007. The financial crisis of 2008 resulted in three years of extreme currency volatility and risk.