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risk management framework

In FX risk management, a Risk Management Framework (RMF) is the structured process used to identify the sources of currency risk and to define the goals of a hedging program aimed at eliminating or minimising the impact of this risk.

The Risk Management Framework should allow management to achieve the goals of a hedging program in a systematic way, meaning: (a) targets must be consistently accomplished over time; (b) the goals of the program must be clearly communicated across the enterprise in as much detail as possible.

A Risk Management Framework takes into account a number of variables, starting with the firm’s pricing parameters. Budget-related programs also take into account the company’s sources of information, IT systems, degree of cash flow visibility, and key decision makers (their risk tolerance, their familiarity with different risk management styles, etc.) Thanks to Currency Management Automation solutions, a wide array of programs is available for firms to tackle the needs formulated in their Risk Management Framework.