Discussions on FX Risk Management at June 2010 Corporate Treasurers Council Roundtables

• The overriding observation (which may be stating the obvious) was that for those companies who had well established hedging programs, they were sticking to their strategies with the exception of a few tweaks, including more opportunistic hedging at the margin, extending duration of hedges and shifting into a rolling hedge strategy to smooth out the extreme movements.

• Companies were engaged in both cash flow and balance sheet hedging, with a few doing net investment hedges to hedge earnings. Most companies employed hedge accounting per FAS 133 in order to gain that preferred accounting treatment, even though everyone stated that it is a very laborious process (again stating the obvious). There was lively discussion about whether to hedge with or without the ability to gain hedge accounting treatment. Some organizations will hedge for the right economic reasons whether or not they were able to gain hedge accounting, regardless of the mark-to-market swings in the P&L. Others would not due to exactly that reason. And this is where the discussion leads to senior management and the board about the benefits and processes of hedging.

• Most companies used forwards as their preferred hedging vehicles, while some did use options and even fewer futures. (NB-In AFP's recent discussions with Bank FX strategists and specialists, there was a great deal of discussion about the use of options to at least get some form of protection even though the cost was high due to the volatility.)

• While there was no overwhelming sense of boards or senior managements clamoring for explanations of the volatility to the hedges, a few participants did mention there was a heightened awareness amongst that group of the extreme level of volatility and hence the need to do more explanation and managing of expectations not just for boards, CFOs, and CEOs, but also investors, analysts and rating agencies.

• An interesting sidebar discussion was around a greater concern about counterparty risk in hedging as opposed to even the currency risk. The latter they can manage, but the counterparty exposure is a more difficult.