Applied foreign exchange management practices have shown remarkable resilience through the recent turbulence in global financial markets, and most firms have left their related processes unchanged, according to a report released by The Conference Board, the global, independent business membership and research association working in the public interest.

“Though firms feel the impact of increased exchange rate volatility on their businesses, they aren’t changing their hedging strategies in response to the higher risk,” says Rainer Schultheis, vice president and managing director for The Conference Board Europe, Middle East & India, and author of the report. “Most firms manage foreign exchange risks proactively and successfully avoided many negative surprises in profits or cash flows, which has been especially important given recent economic conditions.”

The new report is based on a 2008 survey of 227 global companies, plus a 2009 pulse survey to gauge the impact of the financial crisis. It confirms a key conclusion of a 2004 survey by The Conference Board, finding that firms still look predominantly at the transactional side of foreign exchange risk, with only a few regarding exchange rate volatility among key criteria when evaluating strategic investment projects.

“There’s no doubt that reducing the impact of foreign exchange risk is important and a good way to create value for the firm. The question is whether companies should consider adding capabilities with an eye to seeking additional returns or even to gaining sustainable competitive advantage,” says Schultheis. Among other findings: Companies are generally satisfied with the financial hedging instruments currently available, with a clear preference for outright forward contracts.

Corporate leaders would prefer that central banks not intervene directly in foreign exchange markets to stabilize rates – a view that remained consistent during the recent financial crisis.

Global businesses operating from emerging markets appear to have caught up with foreign exchange management practices, and to have absorbed lessons learned from previous regional financial crises; in fact, they’d hedge more if it was more affordable.

 

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