KEY OPERATIONAL CONTROLS FOR TREASURY
Assuming the corporation has accepted the need to manage currency risk, appointed a risk or oversight committee and in the case of large multinational corporations a chief dealer as well, it needs then to establish a set of operational controls in order to be able to monitor that risk and ensure inappropriate positions are not being taken. The importance of doing this is underlined every time the news headlines show another corporation has lost millions of pounds, dollars or yen by not putting such controls in place, or rather by not ensuring their enforcement. There are other operational controls that are important, but among the key ones to put in place are the following:
Position limits — Positions above a certain limit or threshold should not be undertaken without the written authorization of the chief dealer, Treasurer, oversight committee and the board.
Position monitoring — Treasury must have the technological and manpower capability to monitor and mark-to-market all the currency and interest rate positions it has taken on at any one time.
Performance benchmarks should be established — For corporations that only participate in the currency market for hedging purposes, currency hedging benchmarks should be established. For those that are allowed to trade in the currency market, a trading budget should be established at the start of the year and the performance monitored on a monthly or quarterly basis.
July 1st, 2009