FX Reviews – Tool Maker

Client Brief

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.

PMC Solution
  • 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.

  • Understand the real, underlying FX exposures that your business faces
  • Show how your FX risks can be better managed in both financial (cash flows and balance sheet) and commercial terms
  • If you have a new management team
  • When FX markets are volatile
  • During acquisition/divestment activity
  • Or if you simply want a specialist to optimize your approach

Your bespoke review will consist of two phases:

  • Stage 1 – Management level meeting to understand your FX risks, the current risk management approach and any other commercial/financial constraints. We will then provide practical recommendations for improvement
  • Stage 2 – Generation of an FX model and draft Board policy document, providing the quantitative basis and governance framework for hedging activity

We also offer representation on Treasury Committees where FX is a key risk being managed.

  1. Experienced and independent specialists providing clear insights into, and applying current market practices towards the management of, your FX risks
  2. Providing a clear road map for improvement or reassurance that no change is needed

At the end of this process, you will have the practical analytical and policy tools, in a bespoke solution, for the ongoing and effective management of your FX risk