A CFO’s 10-Step Checklist
for Volatile Markets

Currency risk cannot be managed unless it is clearly defined and measured. Note the PO date and shipment date to capture the full economic exposure window, not just invoice-based risk.

• Comprehensive Identification: Exposure extends beyond import/export invoices—include foreign currency loans, milestone-based capex commitments, royalty payments, and long-dated receivables.
• Currency Segmentation: Evaluate exposures by specific currency pair. USDINR volatility behaves differently from EURINR, and each requires its own treatment.

FX exposure begins at PO creation and evolves through shipment, so hedge tenor should reflect real operational timing.

Before selecting any hedging tool, understand when cash flows occur.

• Natural Hedging: Match receivables and payables in the same currency whenever possible.
• Why It Matters: Trade cycle duration determines the true risk window. Longer cycles increase exposure to rate fluctuations.
• Efficiency Benefits: Accurate trade-cycle mapping leads to cleaner execution and lowers the transaction costs across forex operations.

Treat treasury as a cost center focused on protecting margins—not a profit center chasing FX trading gains. A disciplined risk management approach begins with clear boundaries.

Principle: The purpose of risk management is margin preservation, not speculation.

A dynamic hedge framework adjusts hedge ratios and instrument choices based on market conditions. Increase hedge ratios in trending markets to capture favourable rates.

• The Policy: Acts as the anchor for consistent execution.
• Tenor Alignment: Hedge only as far out as sales and procurement visibility allows. Hedging beyond 12 months without certainty may create speculative positions.
• Benchmark Protection: Use the internal Budget Rate as the central reference point.

Choose instruments that align with the certainty of cash flows and the company’s risk philosophy.

Portfolio Approach: A balanced combination of forwards and options often produces the most effective hedge structure.

Execution must align with regulatory requirements and internal controls. Ensure clear segregation of duties and responsibilities.

• Documentation: Ensure all exposures are supported by valid underlying documents—POs, invoices, contracts, shipping documents.
• Regulatory Compliance: Stay current with RBI/FEMA rules on permissible hedging tools, unhedged exposure norms, and reporting requirements.

Strategic decisions should be informed by macroeconomic indicators rather than day-to-day noise.

For example:

and many more such economic data.

Well-timed execution helps minimise rate slippage and improve realised FX outcomes.

• Avoid Last-Minute Hedging: Relying on spot markets can lead to higher spreads.
• Tranche-Based Execution: Booking hedges in staggered tranches improves the effective weighted average rate.

Measure hedge success against risk objectives, not speculative gains.

FX markets, business models, and trade environments evolve.

• Periodic Review: Quarterly evaluations ensure strategies remain relevant.
• Structural Adjustments: Revise the policy when entering new markets, modifying pricing terms, adding product lines, Significant structural change in market dynamics, or altering credit cycles.