Interest rates are on the rise. Finally, after many years of historically low rates across most of the G-20, sufficient economic strength in global markets is poised to drive governments to increase prime borrowing rates.

In the United States, especially, this is yet another indicator that economic recovery has been successful. A strong economy is usually a positive for most organizations. However, treasurers must consider five key factors if they want to reap the potential gains as we enter into what is expected to be a rising-rate environment.

1. Foreign Exchange

The most obvious impact of an increase in interest rates is the effect on foreign exchange (FX). The exchange rate between currencies is driven by the relative difference in tenor points between the two currencies' yield curves. Even a hint of rising interest rates in the United States strengthens the dollar relative to foreign currencies. Depending on an organization's exposures to global currencies, the strengthening of the U.S. dollar has the potential to quickly erode bottom-line earnings.

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