Cash Management

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 HahnSeptember 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.