Hedge Effectiveness Testing, Risk the Biggest Challenges for Treasurers

FINCAD has released the results of its Corporate Finance Survey, which finds that  27% of survey respondents listed hedge effectiveness testing as the biggest challenge they currently faced with respect to derivatives.

 

While hedge effectiveness continues to represent a major challenge, risk, in particular accurate risk assessment (29%), was also top of mind for treasurers. 69% of respondents reported taking steps to adjust their risk management strategy including running scenarios/sensitivity analysis and calculating Value-at-Risk (VaR). These results were similar to last year's survey.

 

As a matter of best-practice, corporations should calculate the Credit Value Adjustment (CVA) on all of their OTC derivative transactions. Despite 75% of respondents using OTC derivatives in their portfolio, only 40% felt that they needed to calculate the CVA for their derivatives valuations.

 

Without CVA in their calculation, corporate treasuries face potential adjustments in their books if their auditor's valuations are different from their own.

 

With all of the regulatory changes on the horizon, the majority (88%) of corporate treasuries felt that they would need to change the way they are doing business. 51% of respondents anticipated that the impact would be minimal, with minor changes needed, 30% thought that the impact would be moderate and notable changes would be needed, and 6% expected to make significant changes.

 

Only 12% felt that they were well-prepared for regulations that lie ahead.

 

 

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