• Managing FX translation risk

    Changes in the exchange rate between the currency in which a company reports and those in which the company’s assets and liabilities are denominated, can have a significant impact on a company’s balance sheet. The risk of this impact is known as ‘translation risk’. It is not an indication of performance failure (at company-wide or individual subsidiary level), but a potential effect of exchange rate changes. This article introduces translation risk.

  • Managing exotic FX risk

    Over recent years, multinational companies have diverted production facilities to lower wage economies and have sought to expand into emerging markets. As a result, treasurers have been asked to manage the foreign exchange risk in emerging markets which has arisen. This article identifies some of the difficulties associated with managing transaction risk in emerging markets. It then outlines the use of non-deliverable forwards as a tool to manage such exotic currency risk.

  • Hedge effectiveness under IAS 39

    Any company wanting to adopt hedge accounting under IAS 39 will need to demonstrate how it expects every documented hedge to be effective and to demonstrate that each one has been effective at every balance sheet date. This article examines the requirements for hedge effectiveness testing under IAS 39 and identifies the most common effectiveness testing methods. The choice of testing method is important as it will determine whether the hedge is effective and whether hedge accounting will continue to be permitted.

  • Update on IAS 39

    The adoption of IAS/IFRS has created a significant amount of work for all companies required to comply with the EU regulation. One of the biggest problems for accountants, finance departments and treasurers has been the continued uncertainty over the exact requirements of the standards, specifically the controversial IAS 39 Financial Instruments: Recognition and Measurement. This article looks at the key reasons why IAS 39 is controversial and explains the main requirements of the standard as it is currently constituted.

  • Compliance with corporate governance requirements

    The corporate governance agenda offers opportunities for treasurers to restructure their operations. There will be a cost to this, so the challenge is to incorporate compliance into regular daily activities as much as possible. Treasurers need to identify what they want to achieve from compliance and communicate that to the treasury department, the board and their investors.

  • Corporate governance international developments

    This article looks at the three main international developments affecting corporate governance within multinational corporate treasuries today – the introduction of International Accounting Standards, the Sarbanes-Oxley Act and Basel 2. In each case, we describe the implications of the change before identifying the key risks treasurers need to manage.

  • Corporate governance for treasurers

    There has been a major focus on corporate governance by governments and regulators around the world over the last few years. These have concentrated on trying to rebuild confidence in the markets after some high profile scandals and to reduce the existence of money laundering. Although these have led to some well-publicised legislation, treasurers also need to demonstrate good corporate governance as a matter of course. This article concentrates on the steps treasurers should take to ensure good corporate governance within their departments. We will look at regulatory requirements in future articles.

  • The 1992 and 2002 ISDA Master Agreements a comparison

    Many companies use derivatives to manage foreign exchange and interest rate exposures. Before entering into derivatives transactions, companies usually agree ISDA Master Agreements with a number of counterparty banks. The market standard remains the 1992 Agreement, although banks are beginning to use the newer, 2002 version. This article explains the main differences between the two documents.

  • Derivatives transactions negotiating the ISDA Master Agreement

    Most companies entering into derivatives transactions will agree an ISDA Master Agreement with a number of counterparty banks. At the moment, the market standard is the 1992 version of the Agreement, although a 2002 version is starting to be used. This article provides a quick guide to the 1992 Master Agreement, identifying the key features of the printed form and highlighting the key points for negotiation in the schedule.

  • Derivatives documentation the role of the ISDA Master Agreement

    When trading in derivatives, a company needs to ensure that the instrument it has purchased will provide the protection it expects. Because of the complexity of some derivatives, negotiating the precise terms and conditions can be a time-consuming and costly process. The development of the ISDA Master Agreement has allowed counterparties in derivatives transactions to shortcut the negotiation process and to standardise many of the terms and conditions which apply.