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Hedge Effectiveness Testing and Risk Remain the Biggest Challenge for Treasuries
FINCAD’s second annual Corporate Finance Survey indicates hedge effectiveness and risk top the list of challenges.
FINCAD, the market leader for innovative derivatives solutions within the finance industry, released the results of its Corporate Finance Survey. 27% of survey respondents listed hedge effectiveness testing as the biggest challenge they currently faced with respect to derivatives.
“Our customers have been talking a lot about hedge accounting,”
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.
FINCAD offers products that help treasuries meet their hedge accounting and risk management challenges. Fair Value Insight is a simple to use, cost effective, web-based valuation and hedge accounting solution built upon FINCAD’s industry standard analytics and ICAP’s unrivalled market data. Fair Value Insight provides an independent and transparent solution for valuing OTC derivatives and risk exposures and takes the complexity out of meeting hedge accounting requirements.
Download a summary report of FINCAD’s 2011 Corporate Finance Survey: http://www.fincad.com/
Founded in 1990, FINCAD provides advanced modelling solutions built on award-winning, patent pending technology. With more than 4,000 clients in over 80 countries around the world, FINCAD is the leading provider of financial analytics technology, enabling global market participants to make informed hedging and investment decisions. FINCAD provides software and services supporting the valuation, reporting and risk management of derivatives and fixed income portfolios to banks, corporate treasuries, hedge funds, asset management firms, audit firms, and governments. FINCAD Analytics can be accessed through Excel, MATLAB, as a Software-as-
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Founded in 1990, FINCAD provides software and services supporting the valuation and risk management of cross-asset class derivatives and fixed income securities to more than more than 4,000 organizations in over 80 countries.