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Managing Multiple Currencies and Foreign Exchange Risk in Planning & Reporting

By Sonia Johnson on Aug 8, 2016

Managing Multiple Currencies and Foreign Exchange Risk in Planning & Reporting

Ever since Brexit - the British referendum on European Union membership - was announced, many have speculated about how such a move would cast effects that ripple across markets worldwide.

While the decision to leave the EU won with just over 1.2 million more votes, the United Kingdom remains in a state of limbo.

While the wheels of Brexit may have ground to a halt, financial institutions around the world are going ahead at full steam, and currencies are rising and falling in the referendum's wake. The damage has been particularly drastic for the pound, which fell to its lowest value in over three decades at the beginning of July, according to Reuters.

The volatility of the pound, such a stable currency in the past, provides a fantastic example of financial exchange risk. It also provides an excellent opportunity to discuss how companies can mitigate and account for such risks through enterprise performance management (EPM) software.

Understanding foreign exchange risk

While Brexit has been frequently called a once-in-a-generation vote, fluctuating currencies create much more frequently occurring risk for businesses whose performance is affected by such volatility. This is known as foreign exchange risk, and it is something all organisations must be aware of.

Many areas of operation are susceptible, such as importing and exporting, managing expenses and revenue in foreign currencies, and handling any offshore branches of an enterprise.

Foreign exchange risk has the most direct impact on organisations with a global reach. However, given the complex web of interactions between organisations, it also affects firms that deal primarily with domestic suppliers and clients as their supply chain is responsive to the overall global market through import and export prices.

Addressing foreign exchange risk

While there are many methods of offsetting the damages of currency volatility, one of the most effective tools an organisation can have at its disposal is accurate financial data that takes multiple currencies into account. With this, strategists can forecast what to expect from those exchange rates and report on the impacts accurately.

As several mitigation methods involve locking in an exchange rate at a specific time, precise models can help organisations time these decisions to coincide with an ideal climate. CPA Australia notes that gathering and analysing such data can play a significant role in coming out on top of foreign exchange risk.

Unfortunately, this is an area where many enterprises are not as prepared as they could be. In its 2016 global foreign exchange survey, Deloitte noted that over 50 per cent of the corporations surveyed faced challenges due to legacy methods of gauging their exposure to this risk, as well as an inability to accurately project that exposure.

Software-based solutions for managing multiple currencies & financial consolidations

Working with other currencies inherently adds a layer of complexity to finance and business analytics, but the right forecasting, close management and reporting software can streamline these processes.

According to BPM Partners, there is a widespread migration under way whereby finance teams are moving away from spreadsheets for financial consolidation to cloud-based financial consolidation solutions.

Host Analytics is one such solution that works with many large, multinational corporations with complex currency situations, ownership structures and general ledgers. Host Analytics translates and reports foreign currency in accordance with the latest standards using current and historical rates through built-in live foreign exchange data feeds. Recurring transactions are automated to streamline the process, saving time while enabling confident reporting of results.

This BPM Partners whitepaper "Financial Consolidation and Reporting: The Cloud Enables Easy Entry & Incremental Adoption" provides a good perspective on why many organisations are turning to cloud-based software platforms to better manage currency fluctuations and account for currencies in their forecasting, reporting and close management processes.

Download Whitepaper

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Written by

Sonia Johnson

Sonia Johnson heads Inside Info's Marketing team, as an experienced B2B marketer, having launched and built the Qlik brand in the Australian market. Sonia has 20 years' experience working within the IT and telco industries, having worked for IBM and Vodafone, the last ten years have been focused within the business intelligence and corporate performance management sectors.

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