Corporate Earnings continue to be negatively impacted due to FX volatility and the impact is hitting the bottom line through diminished shareholder value. Cash flow forecasting, as a component of FX and liquidity risk management processes, can be the key in the preservation of corporate earnings and the realization of greater economic value generated offshore. Put another way, not having cash flow forecasting embedded as part of a broader set of FX and liquidity risk management initiatives is in effect jeopardizing the value of future sales revenues in non-functional currencies, not locking in the cost of goods sold and hence may impact restated earnings.

FX risk is now a key driver of corporate earnings volatility and hedging earnings has become even more critical given the increasing share of corporate profits coming from overseas.¹ The strengthening US dollar is driving North American based multi-nationals to better manage their currency translation risk to protect against diminished returns when restating their offshore earnings. While the majority of multinational corporates hedge to varying degrees, many US corporations have reported negative impacts from USD strength in recent quarters and the potential for more downside risk in coming quarters. FX Volatility is having a material impact on corporate earnings.² With history suggesting continued US dollar appreciation in the current cycle, there is an increasing need for corporations to review their FX and liquidity risk management practices and policies.

While there is nothing new in putting a currency hedging program in place to protect value generated from commercial activity offshore, enterprise wide visibility over future cash flows and anticipated currency positions provides a basis for the program's effectiveness. On-demand visibility into the future aggregate cash position by date by currency across the organization is a prerequisite to enable identification of natural offsets and opportunities for internal hedging resulting in a reduced need for external hedging. A single chart or dashboard is required that presents the cash position by date by currency to a commercially meaningful time horizon. Measuring the accuracy of prior forecasts by date by currency enables a more informed next action minimizing future repair of hedges put in place or the early breaking of deposit contracts if liquidity buffers get stressed. Irrespective of industry or geographic location being considered, there are a number of best practices to consider: