As a global integrated risk assessment firm, Moody's is passionate about managing risk. Several years ago, the company embarked on a review of its foreign exchange (FX) risk management process and concluded that the process could be improved.

"Moody's conducts business in more than 40 countries, and we regularly have exposures to approximately 35 currencies," says Alexander Ilkun, vice president of treasury. "Most of our sizable exposures are major currencies, like euro, Canadian dollar, and Japanese yen. Our exposures are generally stable; they don't change significantly from one month to the next." However, Moody's saw an opportunity to improve visibility and agility in its currency risk management.

Historically, FX risk managers evaluated the company's balance sheet exposures on a monthly basis. For any currency exposure above an established threshold, they placed a hedge using a hedge ratio approach. "Our prior approach was a bit simplistic. For example, the methodology limited our ability to easily interrogate large FX gains or losses," Ilkun says. "We felt it was right to review the program to consider how additional insights may be able to better answer the questions about residual impacts as well as determining hedging actions."