As risk management and audit professionals are well aware, investments and foreign exchanges can present significant challenges for companies. In the wake of the global pandemic and a rapid succession of geopolitical events, most audit leaders have been reevaluating their priorities as well as the capabilities of their teams to deliver in these changed and challenging conditions. Part of that reevaluation includes reviewing their investments and foreign exchange policies.

Reassessing the Risk Environment

Disruptions to the global supply chain have had a ripple effect across many lines of business. Companies must rethink their risk management approaches and strategize how to make better decisions while staying adaptable. In addition to the recent global Black Swans, the digital transformation of businesses has rapidly accelerated at an unprecedented rate, creating new opportunities and introducing new dimensions of risk for the company’s investments and foreign exchange framework.

In light of these challenges, it's crucial for risk management teams to proactively evaluate risks at both a granular and an organizational level. Technology can play a vital role in this, as software solutions can anticipate and identify impacts that various elements will have across multiple lines of business. Technological solutions can also better align identified risks with organizational goals, putting them adjacent to strategic objectives, key performance indicators and overall business entity risks.

Adapting to Tomorrow’s Risks Today

Traditional risk management workflows may be unable to keep up with today’s needs. The cumbersome processes of collecting and organizing risk data, paired with the time-consuming analyses of complex information, can paralyze an organization. To gain the agility and nimbleness needed to ensure resilient investments and foreign exchange integration, businesses should consider utilizing the financial industry’s best practices in combination with technological solutions to streamline processes and make them more efficient.

By following best practices and utilizing best-in-show tools, companies can proactively manage investments and foreign exchange risks while simultaneously building a foundation for sustainable growth. When this is done, companies can mitigate and/or eliminate risks falling under the investments and foreign exchange umbrella, such as:

• Bank treasury workstations used for executing all foreign exchange transactions
   
• Competitive bids not obtained for large dollar foreign exchange transactions, resulting in trades being executed at noncompetitive rates
   
• Foreign exchange exposures not identified and hedged
   
• Foreign exchange trading conducted by an unauthorized individual, possibly exposing the company to potential foreign exchange losses

The Foreign Exchange Management Policy tool provides a comprehensive framework for managing these risks. The policy is tailored to the risks of foreign exchange investing. According to the policy, the foreign exchange committee, as granted authority by the board of directors, should determine which balance sheet exposures to hedge and which exposures are not economically feasible for a hedging strategy. This ensures that the company can minimize foreign exchange losses and minimize the risk that U.S. dollar earnings will be adversely impacted by currency movement.

Best Practices

Policies are a key component of a robust internal control environment, and as such, they are an integral part of an organization's overall risk management strategy. By adhering to the foreign exchange management policy and incorporating it into the company’s overall risk management framework, organizations can effectively identify, assess, and manage investments and foreign exchange risks. This not only helps to minimize potential losses but also helps to ensure compliance with regulatory requirements and investment and foreign exchange best practices.

Integration of Risks

To effectively manage investments and foreign exchange risks, companies should integrate identified risks into the overall risk management framework. This ensures that all risks, including those related to investments and foreign exchange, are being considered and managed cohesively and comprehensively.

Tech

Leveraging technology, such as automated trading systems, can also play a vital role in managing investments and foreign exchange risks. These systems can help organizations make faster and more informed decisions and reduce the risk of errors and fraud.

Review Strategies

Organizations need to conduct regular reviews and assessments of their investments and foreign exchange risk management strategies. This allows them to identify areas where they can improve their risk management capabilities. It also helps them identify and respond to emerging risks. By conducting regular reviews and assessments, organizations can stay ahead of potential risks and proactively mitigate them before they become significant problems.

Review Policies and Procedures

Companies should also regularly review and update investments and foreign exchange policies to ensure that they are effective and reflective of the current business environment. Once policies are either deemed appropriate or updated, companies should conduct a review of their investments and foreign exchange procedures.

Training and Education

Providing training and education to employees on investments and foreign exchange risks and procedures is a key component of a company’s investments and foreign exchange framework. Proper training and education can help employees understand the importance of managing risks and enable them to properly manage related transactions and activities.

Implementing a robust training and education program for employees can further enhance the effectiveness of the foreign exchange management policy. Organizations can improve their overall risk management capabilities by providing employees with the knowledge and skills necessary to identify and mitigate risks related to investments and foreign exchange. This includes educating employees on technological solutions and best practices for risk management.

Third-Party Solutions

Companies should also consider the use of third-party risk management services and tools. KnowledgeLeader can provide organizations with access to best-practice templates for managing investments and foreign exchange risks. Companies can further strengthen their risk management capabilities and improve their overall risk management effectiveness by utilizing these tools.

Implementing a Robust Risk Management Program

With the ongoing disruptions caused by the pandemic and ongoing geopolitical events affecting supply chains, companies should proactively implement a risk management program. Any risk management program worth its salt incorporates best practices and utilizes technology to make faster and better decisions. By ensuring that their risk management programs are comprehensive and well-thought-out, companies can build a foundation for sustainable growth and stay adaptable in the face of emerging risks.

The foreign exchange management policy provides a valuable framework for managing investments and foreign exchange risks. By integrating investments and foreign exchange procedures into the overall risk management framework, regularly reviewing and updating policies, providing training and education, and leveraging technology, organizations can better protect themselves from the potential negative impacts of investments and foreign exchange risks.

The ongoing disruptions caused by the global pandemic have emphasized the importance of proactively managing foreign exchange risks. By following best practices and utilizing tools such as the foreign exchange management policy, companies can proactively manage investments and foreign exchange risks and build a foundation for sustainable growth.

Always Improving

Organizations must be vigilant in monitoring and identifying emerging risks and be prepared to adapt and respond quickly to mitigate them. By implementing a proactive risk management program, organizations can meet regulatory requirements and gain a competitive advantage in today's ever-changing business environment.

Managing investments and foreign exchange risks is a critical task for organizations. By utilizing the foreign exchange management policy and other best practices, audit and risk management professionals can effectively identify, assess and manage these risks. Organizations can further strengthen their risk management capabilities and improve their overall risk management effectiveness by incorporating technological solutions, providing training and education to employees, and conducting regular reviews and assessments.

Ultimately, organizations that can implement an investments and foreign exchange framework appropriate to the current risk environment will increase their ability to manage investments and foreign exchange risks effectively. These companies will be better positioned to achieve their strategic objectives and build a foundation for sustainable growth.