Corporate Foreign Exchange Risk Management

Chapter 10Communicating FXRM

Even at this point, despite the amount of ground covered, we are not quite done yet. Even if the firm's capabilities in FXRM are sufficient to cover the areas described in the previous chapters, we must also find a way to communicate FX exposures effectively. This communication needs to take place on two fronts: internally, towards the company's decision‐makers, and externally, towards the analysts and investors who take an interest in the firm's performance.

Communicating FXRM is important for several reasons. It is part of the organization's broader policy for disclosing information, which is what helps bridge the information asymmetry between the firm's management team and participants in the financial markets. At stake is nothing less than the company's transparency and general credibility, both of which are factors that determine its cost of capital. If the firm has put its FXRM house in good order, it has every reason to convey this to the outside world and gain further benefits from its efforts.

In the pages that follow, we argue that firms often get risk communication wrong in one of two ways: either by disclosing too little (not providing the relevant information) or by disclosing too much (cluttering the financial reports). In unfortunate cases, firms get it wrong on both accounts simultaneously.

What we advocate first and foremost is that the company's leadership start viewing risk communication, in general, as a strategic goal under ...