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How embracing AI may revolutionise hedging for treasury managers

by Darryl Hood | June 20, 2018

A look at the potential that artificial intelligence brings to managing FX risk and FX risk metrics…

AI is currently a trending topic in the world of technology. What exactly is it? AI is intelligence demonstrated by machines. A typical AI perceives its environment and takes actions that maximise its chance of successfully achieving its goals.

But far from being a futuristic concept, AI is already in our lives. Think about the last time Netflix recommended a programme or Siri or Alexa recognised your voice. This is just the beginning and it won’t be long before many businesses will be reliant on AI for their key business decisions.

We’re going to take a look at what impact AI could have on treasury departments in the future…

The challenges treasury managers face when managing FX risk

In a 2016 survey, Deloitte revealed the number one challenge for corporate treasurers was the lack of visibility of FX exposures and reliability of forecasts (1). Treasurers also cited other significant challenges as:

  • manual exposure identification and capture process
  • the ability to analyse exposures and measure hedging results

From these results it’s clear that many corporate treasury teams do not have the visibility of data that they need or the capacity to process this big data. This means they are unable to make informed decisions when it comes to managing FX risk and building associated hedging strategies.

Not only this, treasury departments are often managing FX risk across multiple countries and locations. The ability to process sub sets of data from different regions, countries and offices is a tough ask for even the most sophisticated businesses. On top of internal factors, such as the reliability of staff within those locations and keeping systems up to date, there are external factors such as managing liquidity and counterparty credit with various financial institutions.

There is one other key factor to consider. In a 2017 survey by Deloitte the number one strategic challenge for treasurers was FX volatility (2). So, with the data-related challenges treasurers are facing there’s also the foreign exchange (FX) market, known to be one of the most volatile markets in the world particularly with current levels of global political and economic uncertainty.

How does your business currently monitor and measure FX risk?

According to the same survey, 75% of respondents are not actively monitoring key risks using ‘at risk’ measures and fewer than 50% are using sensitivity analysis (2). This indicates there is huge scope for improvement; perhaps a gap that AI could fill?

At-risk measures are typically complex calculations, however with the right systems in place and visibility of data this can be overcome. Monitoring risk on an on-going basis should, in theory, allow treasury departments to devise more informed hedging strategies by matching these risk metrics to appropriate hedging instruments.

When it comes to the FX market, traders have been using historical trends and FX charting techniques to forecast currency movements for years. The challenge is that most treasury teams simply do not have the resource or capacity to carry out the necessary analysis in order to make decisions on their hedging strategy. Furthermore, they don’t have the data available to learn from previous decisions in order to build future hedging strategies. Could AI be the answer?

Find out the best ways of measuring FX risk in our blog>

What are the best metrics for managing FX risk

Through AI it could be possible to share data sets across a global corporate function as well as external factors such as the FX market with an AI application. The AI could run multiple scenarios with the overlay of different hedging instruments and strategies, and provide advice on the optimal strategy based on a certain goal. Imagine the timesaving benefits and decision-making power treasury departments could have once it has collated data over a number of years.
We already know that computers have a far greater capacity to analyse huge volumes of complex data much faster than the human brain. Most businesses are already taking advantage of this through enterprise resource planning (ERP), accounting and treasury management systems and software. Businesses are now able to make more informed decisions based on data collected across all of their business systems.The potential of AI in the FX market

It may surprise you to hear that hedge funds are already testing and implementing this technology. According to a Digitalist article (3), a San Francisco company uses AI to evolve and optimise investment strategies:

 “The purpose to employ AI for investment purposes is to continuously process and learn from endless stockpiles of data using the world’s most powerful distributed artificial intelligence system and develop new investment strategies that differ from other human and machine-guided strategies.”

It’s clear that AI has multiple potential uses and we predict all business functions are likely to be using it in the near future. Whilst AI will never fully replace treasury departments, when used in an advisory capacity it could change the way hedging strategies are formulated.

To talk to us about how AI could improve your FX risk management strategy, get in touch.



  1. Deloitte Global Foreign Exchange survey, 2016
  2. Deloitte’s Global Corporate Treasury Survey 2017
  3. Hedge Funds Employ AI To Redefine The Trading Business, Digitalist Magazine

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