Minimizing Risk From Foreign Exchange

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I have worked worldwide, and practically every global client of mine had either foreign operations or foreign investments. As a practical matter, all the financial systems we installed were multi-currency and localized (meaning, using the local language). Often the foreign currency risk was managed by the Treasury group, who reported to the CFO. The Treasury folks monitored trade and investment needs and mainly tried to minimize loss from foreign currency exposure, as dealing in foreign exchange (FX) was not considered a core capability.

A friend of mine, Brian Terrell, owns The BTerrell Group and asked me to join a panel on Thursday, July 15 at 1pm (register here) to discuss considerations every CFO should evaluate when making foreign payments. BTerrell Group has a developed a software solution, SmartFX, that helps automate the process and reduce the cost of foreign exchange payments.

Optimizing the opportunity and risk from FX can be tricky if you don’t have the capability of managing this in-house. Let’s use the Mexican peso as an example. Though the USD-MXN rate began 2020 on a low point it made a large leap from the end of February through the end of March during the onset of the COVID-19 pandemic. Between March 2, 2020, and May 28, 2020, the Peso lost approximately 11.4% of its value compared to the US Dollar as a result of the economic and financial regression instigated by the pandemic. After this initial strengthening, the US Dollar has steadily lost ground against the Peso throughout 2020 and the early months of 2021, but rising inflation may cause the value of the dollar to rise again.

As a business leader, this adds complexity to what you already deal with. Why mess with foreign exchange? What are the considerations for a CFO in evaluating FX? I can think of three:

  • You need to support internal business customers.
  • You need to be able to define and implement policies that address the risk of FX.
  • You need an efficient back-office process so that every FX transaction doesn’t turn into a “science project” and clobber your profitability/productivity.

So tying this message together, what BTerrel's solution does is automate interaction between your company and an FX exchange company, Xe. In automating payments directly to Xe, you take advantage of Xe’s highly competitive exchange rates and transaction costs (completely integrated if you use Sage Intacct). Plus, you have access to advisors who can assist you with the right FX strategy for your company (e.g., hedging, currency swaps, open a foreign bank account, etc.).

Have a question about Foreign Exchange? Email and let me know, and as always, I welcome your comments and suggestions.

Please note, Visorie is excited to join BKM Sowan Horan in moving to a new, expanded office space. As of August 1st, our new address will be 14675 Dallas Parkway, Suite 150, Dallas, Texas, 75254. We’ll continue to update you as we progress toward the move, and we’ll also look forward to welcoming you to our new space in the near future!