Technology Banking
risk | 2 minute read

Why your tech company needs an FX risk strategy

In the last two years, the world witnessed a number of dynamic events: the Brexit vote in the United Kingdom, an unprecedented U.S. election, and a shifting interest rate environment. For companies large and small, it’s clear that today’s marketplace spans an increasingly global and interconnected landscape — one where a proactive risk management strategy is essential.

Amid this backdrop, 330 public and private companies recently completed our sixth biennial Foreign Exchange (FX) Risk Management Survey. Top challenges facing FX risk managment: 47% Public Companies: Accuracy and timeliness of information; 55% Private Firms: Market volitility and when or how to hedge risk. Representing a variety of industries and geographies, these organizations shared how they evaluate FX risk, the types of exposures they hedge, how they think about budgeting and accounting, and other real-world perspectives. The results provide a clear snapshot of current FX benchmarks, policy drivers, and hedging best practices.

FX concern aligns with position of U.S. dollar

Overall, FX remains a top concern, extending a trend from our 2014 and 2016 surveys. Across the last six years, more companies ranked FX of greater rather than lesser importance.

Likewise, this year’s results show leaders continuing to prioritize how their organizations handle FX risk management — a trend that’s grown across several survey periods. More businesses are strengthening their risk management infrastructure, and injecting rigor into decision-making and execution. Two-thirds of companies now employ a formal FX policy, which most update annually. The use of quantitative analysis to measure FX impacts has also grown more prevalent.

For most organizations, the position of the U.S. dollar aligns most closely with their level of FX concern. For example, a weaker U.S. dollar existed during the 2014 and 2018 surveys; in both instances, a smaller portion of companies expressed a greater concern. In contrast, when a stronger U.S. dollar was in play during 2016, far more survey participants showed heightened unease, which indicates significant FX pressure for U.S. exporters. As expected, hedging activity among survey participants also ebbs and flows with shifts in U.S. dollar value.

Top FX challenges varied slightly in the current survey, depending on business ownership. Among private firms, market volatility, and when or how to hedge, represent the greatest challenges, cited by more than half of leaders. At public companies, obtaining accurate and timely exposure information creates the biggest hurdle, reported by more than 40%.

Review your exposures, in light of tax code and accounting changes

Moving forward, the 2018 FX Risk Management Survey can provide benchmarks and guidance as you assess your company’s FX risk for the coming months. Two factors that may require adjustments in your organization’s strategy are the new accounting standards introduced by the Financial Accounting Standards Board (FASB) in 2017, and U.S. tax code changes effective for the 2018 year. Start by identifying your exposures, and quantifying their potential impact to your business when FX rates change. Many of the recent accounting and tax changes create new opportunities for companies to explore; a proactive approach will help you maximize your advantages in the short-term.

Next, review and update (or create for the first time) a written FX policy. By outlining the goals of your program, you can obtain buy-in from key stakeholders and avoid missteps when executing hedges or other tactics.

Lastly, reach out to your Wells Fargo FX team for support, including templates for FX policies, assistance with quantitative analysis, or guidance on derivative accounting. These FX specialists can share current market updates as well as real-world perspectives from numerous industries and situations.

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© 2019 Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Managed Account Services and Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

© 2019 Wells Fargo Capital Finance. All rights reserved. Products and services require credit approval. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries.

Wells Fargo & Company conducts business outside the U.S. through various companies, including duly authorized and regulated subsidiaries and affiliates in Asia, Canada, and Latin America. In Europe, banking services are provided through Wells Fargo Bank International (WFBI), directly regulated by the Central Bank of Ireland, and Wells Fargo Bank, N.A. London Branch, authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. All products and services may not be available in all countries. Each situation needs to be evaluated individually and is subject to local regulatory requirements.

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The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. Silicon Valley Top 150 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue

Disclosures

Securities Products:

Not Insured by FDIC or any Federal Government Agency

May Lose Value

Not a Deposit of or Guaranteed by a Bank or Any Bank Affiliate

© 2019 Wells Fargo Bank, N.A. All rights reserved. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC. Deposits held in non-U.S. branches are not FDIC insured.

Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC are distinct entities from affiliated banks and thrifts.

© 2019 Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Managed Account Services and Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

© 2019 Wells Fargo Capital Finance. All rights reserved. Products and services require credit approval. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries.

Wells Fargo & Company conducts business outside the U.S. through various companies, including duly authorized and regulated subsidiaries and affiliates in Asia, Canada, and Latin America. In Europe, banking services are provided through Wells Fargo Bank International (WFBI), directly regulated by the Central Bank of Ireland, and Wells Fargo Bank, N.A. London Branch, authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. All products and services may not be available in all countries. Each situation needs to be evaluated individually and is subject to local regulatory requirements.

We provide links to external websites for convenience. Wells Fargo does not endorse and is not responsible for their content, links, privacy or securities policies.

Important notice regarding use of cookies: By continuing to use this site, you agree to our use of cookies as described in our Digital Privacy and Cookies Policy.

The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue.