How can Corporate Treasurers Tackle FX Hedging Cost looking at their risk on a portfolio level?

Corporate treasurers may be facing a cost challenge when hedging foreign exchange exposures. By managing risk at portfolio level corporate treasurers could strategically reduce hedging costs within acceptable risk levels.

Our client, Avery Dennison looked at FX risk management through a new lens, applying a Value at Risk (VaR) model to assess the real economic risk in their FX portfolio, accounting for correlations between currencies.

By selecting the currencies to hedge and amounts to hedge using a risk/cost framework, they were able to reduce costs within their risk tolerance. This resulted in significant savings of US$~1m annualised in the previous fifteen months with minimal risk.

Additionally, by fully automating the solution and increasing system connectivity by integrating with treasury management system, they improved process efficiencies, reduced manual intervention, capturing results in minutes rather than hours.