Cross-Border

Monitor and Review

CalendarJanuary 29, 2024
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Monitor and Review

In our blog series, we’ve taken you through a framework for managing FX risk, from assessing exposures and defining your risk appetite through to developing and implementing a hedging policy. We’ve covered a lot of ground, both practically and metaphorically, drawing on 20th century military history to provide some illustrations of successful—and less successful—tactics to illustrate our points.

In this, our sixth and last post in this series, we come to the ‘’reckoning’: how did the strategy perform? Performance could be influenced by any number of factors. You can plan for some of these, but others might be outside your control.

Your business may have expanded, or you may have aligned with new suppliers due to shortages or rising prices. A geopolitical issue or natural disaster may have affected expected currency valuations in the currency pairs you need to deal in, or necessitated your trading in unfamiliar markets. High interest rates and inflation may also have had some impact on your profitability or supply networks.

Your evaluation could be as basic as asking yourself this set of questions:

  • Have you achieved your goals? And if not, why not?

  • Has your business changed? Has the market?

  • What could you have done differently?

  • What tactics might you adjust for the next few months? For the next year?

It’s important – particularly in an era of heightened economic uncertainty and related currency volatility – to consider monitoring and regularly reviewing your hedging performance and adjust as needed to help keep you on track to meet your objectives.

A lesson from U.S. General Omar Bradley’s leadership

Preparation, observation, and adaptability characterized the leadership of General Omar Bradley (1893-1981), who led a key military command in Europe in World War II.

Bradley’s early career included teaching mathematics at his alma mater, the US Military Academy (General Douglas MacArthur was then superintendent). Under the guidance of one of his professors, Bradley became a lifelong student of military history. Later, Bradley’s infantry training at Fort Benning in Georgia (now Fort Moore), which focused on open warfare, fire, movement and terrain, honed his tactical thinking ability.

At Fort Benning, Bradley’s mentor was General George Marshall, who encouraged subordinates to think critically and take unorthodox approaches to problem solving.

Bradley was later called the ‘soldier’s general’ as he took these lessons from the classroom and training camps to the battlefields of Europe. He gave subordinates a high degree of autonomy in their positions, supporting them, monitoring their actions, and making adjustments as needed.

As with many leaders, not every campaign or tactic was successful. In Normandy after the D-Day landing Bradley miscalculated the strength of the German opposition and the difficulty of moving troops from the beachhead. With his knowledge of military history, he analysed what had gone wrong and was able to develop a new plan that ultimately succeeded.

He also took advantage of opportunities as he saw them. In the Ardennes Forest (the Battle of the Bulge), Bradley made a quick tactical decision to reinforce the American troops on the ground. Both sides experienced heavy losses, but the battle turned the tide of the war in the Allies’ favour.

It’s fitting that Bradley, tenacious and resilient, is our exemplar for the final post in this series. He was collegial and collaborative, keeping the broad mission in mind and adapting to changing circumstances.

Similarly, in volatile markets, it can be prudent for financial professionals to consider a proactive approach for their hedging implementation. It may help you to build in flexibility, so when opportunities arise you can take advantage of them.

We’ve examined layered and rolling hedges as a tools that can help temper effects of volatility on your financial outcomes. These are examples of approaches that may give you an opportunity to adjust your tactics should circumstances warrant.

In keeping with the World War II theme of this series: It takes hard work and planning to get to a D-Day that accomplishes its mission. Modelling different scenarios, hedging levels, and durations could provide insights and approaches that suit current conditions, yet still help you achieve your business goals.

You may even find areas where you can be a little more creative or unorthodox—if your commanding officer agrees.

Author’s note: Thank you for reading our series!

In our next series, we will focus on two target rates (among a range of strategies) aligned to different risk policies:

The first target threshold will be set to help a treasury officer “participate” in market movements.

The second target threshold will be set to help “defend” cashflow position against market movements.

The next series is planned to launch in March. Please watch for our posts, or subscribe here to have the posts delivered to your inbox.

Author

Moiz Mujtaba

Moiz Mujtaba

Director Product Management - CRMS

Moiz Mujtaba brings 14 years of B2B, B2C payments tech experience with academic background in Finance as a CPA (Australia) and an ACMA (UK). He currently leads the development of Corpay’s FX risk management product line.

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