Why does a corporate need a software solution to manage exchange rate risk?

Read on to find out:
Corporate Treasuries requires to process three kinds of data to manage their operations effectively. These are :

Business Data
Business Activity is the source of foreign exchange risk that can be hedged away by the corporate. Typically, Business Data relating to exports and imports originates from Sales and Purchase order processing systems. These are made available to treasury periodically in the form of spreadsheets, emails, faxes, etc.

These transactions need to be assigned a benchmark rate against which performance can be assessed. At the time of retirement, the actual rate of settling these transactions has to be compared with the benchmark.

Hedging Data
This arises out of the hedging actions undertaken to manage exposures, E.g. forward covers, options, etc. Sometimes hedges may be allocated to specific exposures or may be transferred from one exposure to another.

Market Data
His refers to exchange rate information relating to foreign exchange rates. Latest data on the exchange markets can be obtained from Reuters, Bloomberg or other data feed providers and web sites. Historical data on exchange rates is also needed for valuation, accounting and audit.

To manage foreign exchange risk and effectively implement the corporate treasury policy, it is essential to manage the 3 kinds of data in a single unified framework.

Extracting business data needs users to interface with corporate business systems. Besides, business and hedging data need to be valued periodically (atleast weekly if not daily) using market information. Hedges need to be marked to market regularly. Profits/Losses related to hedges need to be tracked for credits /debits. Consolidated reporting at different levels is also needed.

It is not a easy task to manage this information using spreadsheets alone. While spreadsheets are flexible and easy to setup, they tend to become user dependent and unreliable as a single point source of data. Spreadsheets are intrinsically unsuitable to handle issues relating to data entry & validation, reconciliation, valuation, consolidation and audit.

To know more, get in touch with our nearest branch in your city or drop a mail to us at contactus@vkcfinsoft.com.