The challenge
For a global company like GE, risk management is an absolute priority. Beside exposure to FX, interest rates and commodities, there is also a constant need to manage counterparty, market and operational risks in an industry where contracts are often complex and involve significant sums.
As Shilpa Narula, Director of FX, Derivatives and Investments explains, “We generate and incur a significant portion of our revenues and expenses in currencies, other than the US dollar. To manage this risk GE has, like any major corporation, developed a strategy for FX hedging.”
Narula and her team have employed an ‘early risk management’ initiative that combines new business processes, close coordination with the GE businesses, and new technologies with the goal of ensuring that risk management is considered early on in the ‘deal cycle.’
One obstacle that the team has faced historically is that regulatory landscape around hedging demanded that a great deal of paperwork be signed and submitted. Often, this involved sending or bringing hard copies to local authorities at specific junctures for a transaction to proceed. This is gradually changing, as regulators in the region shift toward simpler procedures and requirements.
The solution
The GE team was keen to capitalise on these recent developments and turned to its banking partners, particularly Bank of America, for support in reducing physical documentation, where possible. The results have been impressive. Today, four of the eight countries in the APAC region have moved to ‘paperless’ hedging, with physical documentation replaced by digital filing.
Best practice and innovation
The approach has allowed the team to be more agile in spotting market trends and reacting quickly. The speed and agility that the paperless hedging enables allows the team to cover down on exposures faster and more precisely, thereby reducing overall exposure risk.
Having the streamlined process of reducing physical documentation in place before the COVID-19 pandemic struck has proven to be critically important. The team is also exploring other solutions to manage its underlying FX documentation, which will have several benefits.
Key benefits
- The improvements in hedging practice and streamlining of documentation process has made the onshore hedging process efficient and leaner.
- Above all, the push to digital came just in time to allow for work from home arrangements during the COVID crisis, avoiding or reducing the need for physical documents.
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