Citizens Bank Warns Most US Firms Over-Exposed To FX Volatility

Most U.S. businesses are over-exposed to risks related to interest rate and foreign exchange volatility, according to new Citizens Bank research.

The FI published a report on Tuesday (Nov. 20) detailing the findings of a survey. Citizens asked more than 300 corporate professionals about how their firms are managing interest rate and FX volatility, finding two-thirds could be over-exposed to volatility risks.

Seventy percent of professionals said they have not locked in lower interest rates despite signs that interest rates are about to rise, and 67 percent said they do not have a hedging strategy deployed to mitigate the risk of fluctuating U.S. dollar valuations. The vast majority, however, say their companies are planning to deploy some active strategy to ensure success in a business environment of rising interest rates and U.S. dollar value changes.

“Foreign exchange and interest rate fluctuations can cost companies significant amounts of money each year, so it’s very surprising that more businesses aren’t taking advantage of simple hedging strategies that can help reduce their risk,” said Citizens Bank Head of Global Markets Tony Bedikian in a statement.

Analysts warn that the failure to mitigate against these risks can cost businesses “millions of dollars.”

Previous analysis published by The Wall Street Journal in August found that U.S. corporates have raised concerns over the negative impact that foreign exchange volatility might have on profits, particularly as ongoing global trade disputes impact the FX markets. HSBC surveyed CFOs earlier this year and found that nearly two-thirds said their earnings were negatively affected by FX volatility exposure.

Nearly half of CFOs surveyed by HSBC at companies of revenues beyond $5 billion said they had planned to increase their FX risk mitigation strategies, and 77 percent of all CFOs plan to allocate more funding to FX risk mitigation efforts.

“The renewed focus on dampening currency risk comes as international trade tensions cloud the outlook for global economic growth and raise concerns about the future of the multinational business paradigm,” The WSJ said in its report.