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Survey Says Fix Fx

Ninety-eight percent of more than 100 U.S.-based multinationals had significant errors in their foreign-exchange spreadsheets.
Avital Louria Hahn, CFO Magazine
September 18, 2007

You might expect that as U.S. corporations become increasingly global, they quickly develop effective systems to manage foreign currency exposure. They don't, at least according to Fx software vendor FIREapps. Foreign exchange (Fx) is a complicated area that few companies understand or manage well. A reliance on manual systems is just one part of the problem.

In a survey of more than 100 U.S.-based multinational corporations, FIREapps found that fully 98 percent had significant errors in their Fx spreadsheets, errors that ran the gamut from missing entities and income to incomplete calculations. Worse, says Andrew Gage, director of marketing at FIREapps, is that in 13 percent of the cases companies inverted numbers on a hedge. That means they were short where they should have been long and vice versa.

This probably wouldn't surprise most of the respondents: the majority of the Fx managers surveyed said they don't trust their own data or the systems that supply it. Assumptions underlying the numbers were also suspect.

In addition to the risk of mistakes and failure to meet FAS 52 requirements (which govern foreign currency translation), companies can pay in other ways as well. For example, the study found that companies that don't fully understand their exposure end up buying 30 percent more derivatives than they need. Lack of experience and high turnover within the Fx community contribute to the challenge of developing more-effective Fx systems.





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