Companies needn't gamble with global commerce, foreign exchange risk
By Staff -- Manufacturing Business Technology, 12/1/2006 7:00:00 AM
A constantly fluctuating foreign exchange rate is one of the biggest challenges companies face when expanding into international markets. They must manage numerous currencies and changing interest rates, and try to hedge foreign exchange risk.
"If the spread between two currencies moves even just a few points, it could potentially wipe out a company's profits," says Andrew Liegel, senior analyst of risk management for IDC Financial Insights, Framingham, Mass.
FiREapps offers supportive technologies to avoid such a loss. Its on-demand solution automates foreign exchange business processes to identify and manage exposure, while also recommending actions to reduce risk.
"Most manufacturers have a vague understanding of foreign exchange risk, but they aren't sure what to do about it," says Wolfgang Koester, CEO and cofounder of the one-year-old FiREapps. "They use spreadsheets to address exposure, but while some applications might find underlying exposure, they might miss the fact that the company is over-hedged, and they won't discover that until budget time."
IDC's Leigel claims manufacturing CFOs typically do not have a high level of expertise in foreign exchange risk. "They are more concerned with protecting their company from downturns and trying to avoid the volatility of interest rates and the exchange rate," says Liegel. "They just want to cover themselves and make sure their team doesn't lose."
CFOs also may take into consideration when invoices are due, or if they are scheduled to purchase pricey goods overseas. "Someone traveling on vacation might lose a few dollars when changing currency, but it's a different story for a company spending millions," says Liegel. "If the spread shifts a few cents, it could dramatically affect the bottom line."
Using the FiREapps dashboard, users query the system and upload data to find hidden exposure. "The Web portal walks users through the risk-exposure process," says Koester. "We give them a template to extract data from the system, and the help they need with integration or adapters."
Midsize manufacturers like an on-demand solution such as this since it doesn't require foreign currency expertise, allowing them to focus on core competencies.
"We don't want to be just another piece of software," says Koester, adding that FiREapps' original target market was corporate treasuries, investor portfolios, and government accounts. Today it's making inroads to midmarket manufacturing.
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