Discover essential FX hedging strategies and currency management best practices from our foreign exchange experts.
Managing the corporate FX workflow: from silos to end-to-end automation
[This article was originally published on LinkedIn.]
Understanding Traditional FX Management
In most organisations, foreign exchange (FX) management has traditionally fallen under the responsibility of treasury teams. Some industries where currency exposure represents a critical business component—such as airlines purchasing fuel and aircraft in USD—may employ dedicated FX managers whose sole focus is currency management.
However, FX has historically operated as an isolated function within most companies. Treasury teams, typically embedded within larger finance departments, have struggled to access real-time FX exposure data. Consequently, hedging decisions are often based on outdated information or approximate forecasts, with hedge ratios and timing determined largely by experience and subjective assumptions about currency movements and volatility.
Key challenge: Converting theoretical hedging policies into practical hedge executions has functioned more as an art than a science.
The Broader Impact of FX on Business
Corporate foreign exchange extends far beyond treasury operations and exchange rates—it significantly impacts accounting practices, hedging product valuations (mark-to-market, gains & losses), and perhaps most critically, a company's commercial capabilities and competitive positioning.
How FX Impacts Revenue Growth
When selling internationally, charging customers in their local currencies demonstrably increases sales volume. Our client data at Kantox consistently confirms this pattern. However, implementing foreign currency pricing requires well-defined processes and risk management strategies.
How FX Impacts Procurement and Margins
Similarly, when paying international suppliers in their local currencies, companies typically negotiate better terms, leading to improved profit margins. Again, this approach necessitates appropriate FX risk management protocols.
Strategic insight: FX should not be viewed as an isolated treasury function but as a company-wide strategic element that directly impacts top-line growth and profitability—a powerful tool for enhancing competitive advantage.
Aligning Treasury with Business Operations
The modern treasury team's role has evolved beyond simply executing hedges and negotiating spreads (tasks that multi-dealer platforms like 360T or FXall have largely simplified through "best-price" automation). Today's treasury function must align closely with:
- Commercial teams: Enabling pricing in local currencies to drive revenue growth
- Pricing departments: Calculating and updating pricing parameters based on exchange rate fluctuations
- Procurement teams: Facilitating payments to foreign suppliers in multiple local currencies
This alignment requires treasury to implement automated processes that are both efficient and robust enough to handle complex multi-currency environments.
The Corporate FX Lifecycle
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Treasury teams now need comprehensive management capabilities across the entire FX exposure lifecycle:
- Forecast stage: Initial exposure identification
- Sales/Purchase order stage: Conversion to actual business commitments
- Accounts receivable/payable stage: Balance sheet recognition
- Settlement stage: Final currency exchange and payment execution
This end-to-end lifecycle management represents a fundamental shift from viewing FX as a separate function to recognizing it as an integral component of standard business operations.
The Automation Revolution in FX Management
As companies expand their multi-currency operations, the complexity of managing numerous currency pairs across different business stages has increased exponentially. The days when treasurers could focus on manually managing their top 5-10 currency pairs based on appreciation potential are rapidly disappearing.
Why automation is essential:
- Multiple currency pairs require management
- Real-time data from forecasts, orders, and accounting is necessary
- Decision-making must occur instantly to align with business activities
- Complex processes exceed manual management capabilities
The era of automation has definitively arrived—algorithmic systems can execute hedging policies with remarkable reliability, operating 24/6 at the micro-transaction level.
Current State of FX Automation Solutions
The term "automation" in FX simply means "performing tasks previously handled by humans." However, the scope of automation varies significantly across available solutions. Many current solutions only automate narrow segments of the workflow:
- Reducing manual clicks
- Eliminating data entry errors
- Saving incremental time
Platforms like 360T offer solutions that automatically route trades but don't address the entire FX management process.
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FX analytics software like FIREapps can extract ERP or TMS data to calculate exposures and generate hedge recommendations automatically.
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While nearly every vendor claims to offer automation, implementations vary dramatically. For example, what SAP labels an "End-to-End FX Trading Process" still requires up to 17 clicks and multiple vendor integrations—hardly a seamless automated workflow.
The Future of Corporate FX Management
True FX automation will integrate:
- Real-time exposure data from all business systems
- Automated execution based on pre-defined policy parameters
- Direct integration with accounting and business planning
- AI-powered forecasting and risk assessment
- Seamless multi-currency operations across all business functions
Key Takeaways
- FX management is evolving from a treasury silo to an integrated business function
- Currency strategy directly impacts revenue growth and profit margins
- Automation is essential for managing complex multi-currency operations
- Current automation solutions often address only portions of the FX workflow
- The future belongs to fully integrated, end-to-end FX automation systems
At Kantox, we consider that foreign currencies are an opportunity if properly managed. This is why we have built Dynamic Hedging, a software solution that fully automates the corporate FX workflow.
In this video from SAP, what is named “End-to-End FX Trading Process”, requires up to 17 clicks and the involvement of multiple vendors.
