An organization had FX and commodity exposures resulting from its raw material purchases of aluminum. With global sales denominated primarily in USD, the business was exposed to the effects of volatility in both the MYR/USD exchange rate and aluminum prices. PMC was asked to review the business approach to managing FX and commodity pricing risk.
- Perform an analysis of the drivers and timing of the business’ sales and purchases;
- Develop a model that enables the business to track its currency cash flows, together with purchase prices and timelines;
- Design a revised risk management approach which employs natural hedges and restructured some existing purchase contracts before hedging the residual exposures; and
- Prepare a formalized Board approved risk management policy document.
Results & Recommendations
We were able to assist the client through developing a better understanding of the FX and commodity risk and introducing a risk management policy to mitigate the exposure.