How to Implement Internal Controls for FX Risk Management

Internal control (IC) involves everything that controls risks to an organization. IC relates to operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. When it comes to hedging foreign exchange risk and Sarbanes-Oxley (SOX), management should be able to understand, assess, and conclude on the adequacy of internal controls over financial reporting as it relates to currency risk management.

In general, a minimum of three personnel are required for sufficient internal controls since the trading, accounting, and confirmation duties should be segregated. For example, the Chief Financial Officer (CFO) could be responsible for confirmation and authorization, the controller could be responsible for accounting and record keeping, the treasurer could be responsible for trading and custody. Furthermore, the Board of Directors could be responsible for oversight and approval, and in the event that an exception to the Policy is warranted, the CFO could be responsible for approving any exceptions.

While specific internal controls will need to be tailored to the specific needs of an organization, some key questions that should be addressed include:

1. Who has the authority to execute trades?
2. How will trades be executed and what process should be followed?
3. How and when are trades confirmed and compared?
4. Are the trading, accounting, and confirmation duties segregated sufficiently?
5. Who has the authority to authorize policy exceptions, and trade ticket or accounting discrepancies?

It is critical to include internal controls as an essential component of an effective Foreign Exchange Risk Management Policy because it outlines in detail the specific processes to be followed. The Internal Controls section of a Policy should address the key questions above by stating internal controls have been set forth to segregate the trading, accounting, and confirmation processes. Continuing the example using the CFO, controller, and treasurer, internal controls could apply to the following FX Risk Management related tasks:

• The Treasurer will be responsible for recommending hedging strategies, and the Controller and Chief Financial Officer will be responsible for approving the proposed strategies prior to trade execution.
• The Treasurer will be responsible for selecting counterparty foreign exchange service providers in accordance with 'Counterparty Guidelines', and the Controller is responsible for approving the selected counterparty prior to trade execution.
• The Treasurer is responsible for executing approved hedging strategies and subsequently recording the transaction in the appropriate general ledger account within 24 hours. The Controller is responsible for confirming that the financial reporting surrounding trade execution matches the trade confirmation received by the counterparty service provider within 72 hours. If a trade confirmation is not received within 72 hours, the Controller is responsible for obtaining the confirmation directly from the counterparty service provider, mediating any disputes between the Treasurer and the counterparty service provider, and alerting the Chief Financial Officer of any pertinent issues.
• The Treasurer will prepare a cash reconciliation at each month end related to all underlying positions and derivative transactions, both inflows and outflows, that occurred throughout the period. The Controller will cross check the cash reconciliation with all trade confirmations to ensure cash balances reflected on the accounting records match the economics of the underlying positions and derivative transactions settled throughout the period.

These are just some of the many ways organizations engaged in foreign exchange risk management should be considering internal controls as part of their currency hedging program and formal Policy. Keep in mind that policies and procedures are never perfect, and should be viewed as a process that is responsive to change and capable of continuous enhancement. By starting sooner rather than later, practice, experience, and results will contribute better information to the internal control process allowing for changes to be made to the foreign exchange risk management program in the future.

If you are interested in learning how internal controls are integrated into a foreign exchange risk management policy, FX Initiative's currency risk management training has a course on FX Risk Management that walks you through a real-world scenario using the Foreign Exchange Risk Policy Drafter to illustrate step-by-step the process of segregation of duties and how it relates to personnel and reporting. World class organizations know that proactive prevention is the best approach to long-term compliance and sustainability, so take the FX Initiative and improve your internal control process by subscribing today!

Ready to learn about Internal Control and FX Risk Management? Click here to get started >

Cheers,

The FX Initiative Team
support@fxinitiative.com

Download the PDF Brochure to learn about FX Initiative!

Are you curious how FX Initiative can help you with currency risk management? Download the PDF brochure and learn why Fortune 500 companies, small and medium sized enterprises (SME), and sales teams of financial institutions trust FX Initiative to learn foreign exchange best practices.

For over a decade, we’ve been training Fortune 500 companies, global businesses, treasury professionals, and FX sales teams on foreign exchange risk management best practices. While all client’s had different objectives and challenges, all benefited from the unparalleled foreign exchange (FX) and continuing professional education (CPE) resources FX Initiative’s currency risk management training provides created by industry expert & trainer Evan Mahoney, CPA. Whether you’re new to foreign exchange or a seasoned professional, your questions will be answered, your challenges will be addressed, and you will leave with an actionable plan for managing currency risk.

Download the PDF Brochure

Self-Study currency risk management training with Evan Mahoney is the gold standard for meeting your organization’s professional development needs. Live webinar sessions that are fully customized can be added to enhance your learning experience and address and solve company specific challenges. Evan has a passion for teaching that shines through in his recorded presentations and live events alike. Evan’s training is so effective that over 90% of trainees went from scoring less than <70% on the Pre-Training Evaluation to earning a perfect 100% score post-training. Not only does this show the growth in knowledge each student experiences, but it leaves a lasting foundation of information to access daily. Our best source of new clients comes from satisfied customers that have benefited directly from our Currency Risk Management Training. You can take full advantage by combining self-study training and customized live webinars to ensure your organization has the resources needed to optimize and mitigate FX risk. Our training is accessible globally and available around the clock to meet your needs.

Evan Mahoney has over a decade of foreign exchange experience, and has helped hundreds of companies identify, assess, and mitigate foreign exchange risk. Evan’s strong finance and accounting background offers a unique skill set for solving technical strategy, policy, and financial reporting challenges in a manner that allows clients to understand and address their currency risk management issues at hand. Evan is an experienced practitioner and established thought leader available to service your organizations’ ongoing currency risk management training and professional development needs. Want to discuss Currency Risk Management Training with Evan Mahoney? Call 312-566-7475 or email evan.mahoney@fxinitiative.com today!

Ready to take the FX Initiative? Click here to get started!

Cheers,

The FX Initiative Team
support@fxinitiative.com

Focus First on FX Fundamentals

Foreign exchange risk management is referred to as a topic that’s “an inch wide and a mile deep.” This phrase means that one can easily cover the surface of the topic, but once you delve deeper there is a plethora of nuances and subtleties multinational corporations need to know to succeed.

The concept of “meta-learning” relates to an awareness and understanding of “how” you are learning not just “what” you are learning. In order for companies to solve more complex FX risk management issues, it is essential to look at “how” you are learning the fundamentals of FX risk management first.

For example, many companies struggle with accounting for currency derivatives. However, before a firm can truly grasp derivative accounting, it is essential to first build a foundation of knowledge on how to account for underlying foreign exchange exposures. Taking a step back can lead to a leap forward.

FX Initiative’s Currency Risk Management Training provides an incremental approach on both “how” and “what” to learn as it relates to foreign exchange exchange risk management. Whether you are brand new to FX or have prior experience, the training program can start where you currently are.

Our series of 6 training modules begins by focusing on the fundamentals of the Foreign Exchange Market and concludes with more advanced topics on Hedging FX Transactions & Foreign Subsidiaries. In between, we cover FX Risk Exposures, Risk Management, and Spot & Derivatives. This framework is designed to help the learner jump right into the curriculum at any point to elicit the most critical knowledge for their personal development. The key is that the learner has an awareness of where they are on the learning curve, and that is where the "how" of meta-learning comes into the equation.

FX Initiative's currency risk management training includes the following 6 video modules:

1. Foreign Exchange (FX) Market Overview
2. FX Risk Exposures
3. FX Risk Management
4. FX Spot & Derivatives
5. Hedging FX Transactions
6. Hedging Foreign Subsidiaries

You can watch the free introductions for each program to get an idea of the learning objectives covered, and then begin with the video you want to learn more about. For example, if you already know how to read currency quotations in the newspaper and how supply and demand impacts FX forecasting, then you may be ready to start learning where to look for FX Risk Exposures or how to create a FX Risk Management Policy. Investing the time up-front in learning foreign exchange fundamentals can help you solve more complex issues later on.

If you are ready to enahce your learning experience, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms recently, and it is now easier than ever to learn the fundamentals of currency risk management. Take the FX Initiative for your international business today!

Click here to subscribe >

Cheers,

The FX Initiative Team
support@fxinitiative.com

Start Learning the ABC’s of FX Risk Management

When it comes to Foreign Exchange Risk Management, finance, accounting and treasury professionals often find themselves dealing with a wide range of complex cash flow and financial reporting issues. In order to provide more sophisticated solutions to complicated problems, it is essential to first build a foundation of knowledge to use as a framework to make decisions. FX Initiative’s currency risk management training helps you learn “The ABC’s of FX” starting with the most basic concepts to help you scale the learning curve and effectively manage FX risk for your business.

Global companies face questions of how to manage currency risk? How to draft a FX risk policy? Where to look for FX risk exposures? What currency risks to hedge and how? Which strategies meet FX hedge objectives? What are the economics? How to do FX accounting?

FX Initiative's foreign exchange risk management training addresses all of these questions with our online video series about:

1. Foreign Exchange (FX) Market Overview
2. FX Risk Exposures
3. FX Risk Management
4. FX Spot & Derivatives
5. Hedging FX Transactions
6. Hedging Foreign Subsidiaries

Then, you can review and test with quizzes and CPE exams. And reinforce learning using real examples with our:

• Currency Code Locator
• FX Risk Policy Drafter
• FX Derivative Speculator
• FX Transaction Simulator
• FX Subsidiary Consolidator

FX Initiative training is available 24/7 365 to help you with FX risk policies, FX accounting, FX hedging strategies, and FX risk management.

Are you ready to manage FX risk?  Take the FX Initiative by subscribing today!

If you are ready to deliver better results to the bottom line, become a FX Initiative subscriber today and access our complete suite of foreign exchange (FX) continuing professional education (CPE), examples and events at FXCPE.com. Managing FX risk has become a higher priority for many firms recently, and it is now easier than ever to learn the fundamentals of currency risk management. Take the FX Initiative for your international business today!

Click here to subscribe >

Cheers,

The FX Initiative Team
support@fxinitiative.com