Medtronic implemented Goldman Sachs’ Capital Markets Atlas Tool. The solution involved inputting exposures in 40 currencies and the respective exposure sizes. The tool then assesses volatility, correlations and hedging costs to propose an efficient frontier curve.

This curve delineates 20 strategic solutions, spanning a spectrum of hedging scenarios – from fully hedging all exposures at a significant cost to a no-cost option that provides no risk reduction, leaving all exposures unhedged. Ultimately, Medtronic chose to maximise risk reduction, a decision that effectively reduced its maximum potential P&L loss to just 0.5%.

Medtronic was able to strategically determine which currencies to hedge; which to leave unhedged, and which to partially hedge, thereby tailoring its hedging activities to align precisely with the company’s financial objectives and risk tolerance. The tool empowers Medtronic to devise and implement a strategy that not only substantially mitigates the company’s FX risk but also achieved a significant reduction in its annual spending. The solution resulted in a US$12m lower annual cost than the previous strategy.

“It applies an efficient frontier value-at-risk model, enabling a strategic overhaul of our FX hedging approach,” explains Tim Husnik, Senior Treasury Director.