S&P 100 companies generate approximately 60% of their earnings from outside of their base operating currency.1 But currency volatility creates an ever looming threat that can destroy value fast. One S&P 100 MNC lost 9 percent of full-year earnings per share in 2015. Another saw $17 billion in sales evaporate.2 If you don’t address currency risk as you expand into new growth markets, the problem will only intensify.

No matter how sophisticated you are, you might not see it coming. Out of 133 global corporations, 56% said that lack of visibility and reliability of FX forecasts is the biggest challenge in managing FX risk.3 Volatility impedes predictability.


Market conditions are always evolving. Corporate treasury must be ready to respond to risks that could destroy value and opportunities to enhance performance. How can you be flexible if your supporting banking structures are rigid? A lack of flexibility is often layered in:

Bank account structures that are often hardcoded. Many accounts around the world hold pockets of cash in non-functional currencies, spread across banks.

Liquidity management being less mobile as a result of account structure. Viewing and managing liquidity across jurisdictions to support payment flows is complex. Idle cash sits in non-functional currencies, or, if centralized, then there is a clunky, often manual process for moving liquidity at the right time to support payments and optimize cash.

Currency exposures that are challenging to cohesively view, aggregate and manage. Hedging is often a separate activity from the flow of business that created the exposures.

The resulting inflexibility exposes companies to risks while limiting the possible upside amid shifting market conditions and emerging opportunities.


The good news is that the avenue to FX flexibility is through the above same three layers. Whether your global presence includes manufacturing, sales and distribution, or a blend of both, you can identify a finite number of choices for achieving change by assessing your business activities and transaction flows.

Accomplishing this task requires the following series of steps:

Simplify your bank account structure

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    The old assumption is that companies should reduce the number of their accounts to better manage their FX risk. Rather than merely query the number of accounts however, the more relevant question for companies in this context is how to avoid hardcoding a complex account structure altogether.
    The ability to manage your entire operations from a single account could transform how you approach payments and collections, liquidity, and currency risk. A new generation of solutions makes this achievable. Today, you can design a hierarchy of virtual or sub-ledger accounts to solve for complex accounting issues. An alternative structure is to place a cluster of physical accounts in multiple currencies in a single location. No one size fits all. The right structure will depend on your operating model, business activities and transaction flows.

Free your liquidity

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    A flexible account structure frees you to make liquidity more efficient to manage. Solutions that embed FX in liquidity management serve the flow of business while letting you aggregate and strategically manage currency exposures.


    The ability to manage your entire operations from a single account could transform how you approach payments Solutions for funding and sweeping cash let you tightly link payments, liquidity and FX for agile mobilization of cash in alignment with transaction flows. For example:


    • Just-in-time funding builds on a simplified centralized account to automate local currency payments. The solution embeds FX and lets you pay directly via local ACH systems. Embedding FX within funding lets you manage currency exposures while increasing payment efficiency.


    • Some companies need to retain local currency accounts. You can fund these automatically from one central account in your functional currency and convert and centralize residual balances in the same manner. This allows you to retain onshore accounts and limit the duration of currency exposures without compromising central liquidity.


    Such solutions allow you to consolidate liquidity and hedge against a currency pool that can be invested in the most advantageous interest rate environment.

Tightly manage currency exposures

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    When you take these steps, FX becomes a connection, or bridge, between liquidity and payment flows that is embedded as part of an automated end-to-end process. Managing FX in this way removes pockets of cash in non-functional currencies where the currency exposure tied to any one position may seem small, but the aggregate exposure could be large and financially damaging. Natural hedges become possible where payments and receipts enable them.


    Accounts, liquidity and FX align to support payment flows and underlying business while strategically managing currency risk. FX risk management is no longer a separate task but instead tightly integrates within the account structure.


With an automated, self-regulating solution in place, it doesn’t make sense to revert to a labor-intensive approach for managing residual FX or cash investments. Underlying the quest for the best rates is the hidden cost of employing a team of people who are engaged in placing multiple calls to compare rates before then executing FX trades. It is more beneficial economically to leverage the flexible, automated system you have built and extend it to these activities to reduce these costs.

Additionally, you can segregate your long-term strategic currency hedges and investments for handling via your multi-dealer platform. This efficiently minimizes the costs of running a manual investment machine.

Risk and opportunity: interest rates

Evolving rate environments exemplify the need for flexibility. With global variances between negative, flat and rising rates liquidity must be visible and mobile across currencies to the extent possible to minimize costs and risks while optimizing cash. Liquidity mobilization for investment can embed automated FX and be directed based on your liquidity profile including yield benchmarks.


As you sculpt your infrastructure, you must evaluate potential providers to determine how well they can address each layer and bring together the three composite parts for achieving FX flexibility. Tackling flexibility layer by layer allows you to manage liquidity, payments and FX cohesively. Simplification takes work as it requires you to unwind hardcoding of account structures. However, the end result will improve your responsiveness to business requirements in an ever-changing corporate environment.

For more information, contact your J.P. Morgan Treasury Representative.


1. Bloomberg FactSet, October 2013

 “Dollar Defying Forecasts Stumps Hundreds of Companies that Hedge”, Bloomberg, March 3, 2016 (Source for reference: https://www.bloomberg.com/news/articles/2016-03-04/dollar-defying-forecasts-stumps-hundreds-of-companies-that-hedge)


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