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Ford’s treasury de-compartmentalized its risks by developing a cash-flow-at-risk (CFaR) tool to show how exposures as different as commodity price fluctuation and foreign exchange volatility could be interrelated and that hedging them separately could undo natural hedges.
“We knew that there is a diversification benefit among our commodity and currency exposures,” says Dennis Tosh, director of global trading and automotive risk management. “But we didn’t have a robust process or system that could measure it and give us a more realistic view of our net exposures. Now we do.”
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