Achieving a successful outcome in any endeavour does not come about by chance.
It requires planning, forethought, discipline and usually starts out with a checklist from which to build.
We consider the following questions to be the foundation to achieve a successful currency risk management strategy for any business.
Once you have the answers to these questions, this will provide the skeleton of a policy framework. It should be comprehensive enough that someone unfamiliar with your business activities could easily follow the steps.
But it should also be robust enough that no single person is capable of transacting on the company’s behalf without appropriate checks and balances. This is generally achieved by ensuring that your counterparties have copies of your framework and they are aware of the authority holders.
With the policy now in hand, it’s time to test whether everything has been addressed and implement a hedge transaction.
As you go through the steps, it will become clear whether modifications are required to the process. It’s also worth considering whether you will be able to follow the process in difficult market conditions. And these occur much more frequently than you think.
Perhaps the most difficult conditions occur when the hedge book is at rates much worse than the current spot rate and you wish you didn’t have them at all. But remember, the worst time to change any plan is when there is emotional response. So, this brings us to the final step:
Whether it’s a decision-making model, such as the de Bono Six Thinking Hats, a trusted advisor or member of staff, if you’re tempted to disregard your policy consider why you initially developed the framework.
Adrienne Sartori
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