How much can the CFO do to mitigate price volatility, whether in currency movements or the price of inputs?
Currency risks have become one of the headaches of the CFO as globalization has increased. Today you have to understand hedging, and you have to understand too that the best hedges are natural ones. If, for example, you move your cost base to where you make your revenues, you remove what would otherwise be an exposure. In our case, opening up offices in the United States and making acquisitions where we have a number of key clients was absolutely critical in mitigating dollar/euro swings. The treasury function in any large company is now a much more important function. Today, credit risk management has become a very deep skill, and there is a real art to it. As a CFO, though, you need to have a clear sense of what risks you should not be allowing your organization to take. For example, we had any number of salesmen trying to sell us derivatives products, but we took an extremely conservative line. We did not look to turn our treasury function into a profit center by taking on risk that was not central to our business. As a CFO you have to be prudent, with an eye to the longer game. It is not just this year’s results that matter, but where the organization will be in three to five years time. In today’s markets, if you are not looking at least three years ahead, you are really flying blind.
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