Who knows what in currency exposure monitoring and hedging

Treasury knows the hedge book. The business knows which deals are real and when cash will actually move. Accounting knows what sits on the ledger and how it will be measured. Trouble starts when a hedge rests on one view without testing it against the others.

What the commercial side knows first

Exposure exists in someone's head long before it exists in a system. A sales lead knows a large customer will insist on paying in euros. A buyer knows the supplier quote on their desk is priced in dollars and will probably be signed. None of this is visible to treasury until an order or invoice posts, and by then the cheapest moment to hedge has often passed.

The gap widens between commitment and order. A purchase request gets raised in one currency and amount. The final order comes back different, because the supplier changed terms or the buyer negotiated a split shipment. If nobody compares the signed order to the original commitment, the forecast exposure treasury is hedging quietly drifts away from the real one.

Cancellations are worse. A deal falls through, the commercial team moves on, and nobody tells treasury. The hedge stays in place against nothing. It has become a position.

What treasury holds that nobody else sees

Treasury knows the contracts: rates, maturities, counterparties, credit lines used and policy limits. The business usually has no idea a specific invoice is hedged. So a salesperson agrees to extend a customer's payment date, or accepts settlement in a different currency, believing it is a purely commercial concession.

The forward still matures on the original date. Treasury now has to roll it or swap it, and the cost lands somewhere nobody expected. The commercial decision was reasonable on its own terms. It was simply made without the information that would have priced it properly.

Treasury, for its part, rarely knows how customers really pay. Forecasts assume due dates.

What accounting and collections know

Accounting holds the foreign currency balances as they actually stand, the revaluation results, and the hedge documentation that decides whether gains and losses can be matched against the exposure. Treasury sometimes hedges an item accounting cannot designate. The economic protection works, yet the income statement still swings, and the explanation arrives after the results are published.

The foreign currency position report is another fault line. Treasury builds it from its own system. The ledger says something else. Any report that goes outside the business must trace back to general ledger balances, and reconciling the two after the fact is where most of the unexplained differences surface.

The collections team knows which foreign customers are slow, which invoices are disputed, and which ones will be written down or sent to an agency. That ageing view rarely reaches treasury, so receivables that will not be collected on time keep being treated as firm inflows to hedge.

What local entities know

Subsidiary finance teams know their own pricing habits, their local bank, any restrictions on moving cash out of the country, and the informal netting they do with sister companies. Group treasury sees consolidated figures, usually after close.

Intercompany balances cause the most friction here. Each side may record the same balance in a different currency, settle it whenever cash allows, and leave reconciliation breaks open. An unreconciled intercompany balance is an exposure nobody owns. It can sit unhedged for a long time because each party assumes the other is managing it.

Where the friction concentrates

Almost every hedging surprise traces back to a change made by someone who did not know it mattered. A date moved, a currency switched, an order cancelled, a dispute opened. The fix is seldom a better model. It is a reliable route for those changes to reach the person holding the hedge, and a regular check that the ledger, the order book and the hedge book still describe the same world.

Questions to ask the people who run it

The documented process usually shows a clean handoff from forecast to hedge. What happens on the ground is messier. Ask:

• When a customer asks to pay in a different currency, who approves it, and does treasury hear about it?
• How does treasury find out that a hedged order has been cancelled or reduced?
• Who compares the signed purchase order to the original commitment, and what happens when they differ?
• Which foreign currency exposures are knowingly left unhedged, and who decided that?
• Does the treasury position report tie to the ledger without manual adjustment? If not, who makes the adjustments?
• How are disputed or doubtful foreign receivables removed from the hedging forecast?
• Which intercompany balances are never settled, and in whose currency are they really denominated?
• When a hedge has to be rolled, who bears the cost, and does the business unit ever see it?
• What does a local finance team do with currency that the group never asks about?
• Which spreadsheet would break the process if its owner left tomorrow?

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.