Five good reasons to postpone your FX risk review. And why none of them holds.

“We are in the middle of an extraordinary transaction.” “We are focused on the quarterly results.” “We have just been hit by invoice fraud.” “We should deal with it, but right now we do not have the people.” “Our bank already looks after it.”

These are the answers we hear most often when we offer companies an FX risk review. Legitimate reasons, all of them. None is a good reason to wait.

I do the same in another area. Teeth, eyes, hearing, heart, blood tests: busy with work, we put off the check-ups we should have regularly. Then we face a problem that only became one because we ignored the first signs.

Many companies treat currency risk the same way. It is not the core business, it is complex, it takes time, and hedging has a cost. So they wait, and act in the spot market when they no longer have a choice. That is the surest way to erode the operating margin.

Then there is an accounting illusion: if you hedge at the rate at which invoices are booked, the FX losses in the accounts stay small. But the comparison that matters is with the budget rate, or with the moment the risk really arose: the order, the price list, the contract. There the impact is sometimes heavy, and it does not appear on any P&L line labelled “FX”.

I am not wise enough to hand out advice, but after more than 35 years in the currency markets I can say three things:

• Checks and prevention are always less invasive and less expensive than the cure. In health as in currencies.
• A regular check-up is the most efficient way to keep a neglected problem from having serious consequences.
• Checks should be done by someone who does only that, not by someone who sells the products to fix the problem.

I would not get a check-up from a pharmaceutical company. Would you? Banks are indispensable partners for executing hedges; I say that after thirty years there. But their business is placing derivatives. Diagnosis should be kept apart from treatment.

That is why we built the GLORIARMS FX Risk Check-up: six areas of analysis, from gross and net exposure (including natural hedges) to the hedging policy and how it is applied, through to hedge effectiveness and stress tests.

Back to the objections at the start. We run the check-up together with you, and the time we ask for is no more than a business lunch. No days of dedicated resources: the analysis is our job. You keep a clear map of where you stand and what is worth doing, with concrete results you can use straight away, including with your auditor ahead of ISA 570 (Revised 2024).

GLORIARMS does not sell derivatives and does not act as a counterparty: our only interest is a correct diagnosis. The perfect moment may never come. Time for a business lunch can always be found.