In a Deloitte survey of treasury groups, 52 percentof respondents cited foreign exchange (FX) volatility as theirnumber-one strategic challenge. Meanwhile, a Wells Fargo survey reported that 43 percent oftreasury and finance professionals think market volatility,combined with the effects of volatility on hedging decisions andstrategy, forms their greatest FX risk management challenge. Thiscomes as little surprise, given trends in currency markets inrecent years.

Over the past five years, the trading range of the U.S. dollarvs. many other major currencies has swung widely. Consider, forexample, the Brazilian real: BRL220,000 was equivalent toUS$100,000 in 2014, but less than US$53,000 in 2018. So a companythat earned US$100,000 in real-denominated revenue when exchangerates were favorable would have seen the same revenue devalued tobe worth just over US$50,000 when FX rates were at their worst.Businesses with revenues and/or expenses denominated in foreigncurrencies, such as U.S.-based software companies sellingapplications in euros in Europe, or U.S. manufacturers using MXN topay for components they buy in Mexico, are finding it impossible toforecast results or analyze investments with an acceptable level ofaccuracy.