Foreign exchange risk is a major concern for corporate treasurers globally. According to JP Morgan Global Cash Management survey, 43 per cent of the respondents have mentioned forex risk as a major issue mainly because of dramatic movement in currency and extreme uncertainty over global interest rates.
Bank deposits remain the most commonly used investment type, although the allocation has come down from 61 per cent in 2007 to 55 per cent. AAA-rated money market funds continue to be the most widely used pooled vehicle, with 91 per cent of respondents who invest in pooled funds having some allocation to them. It reflects the wide acceptance of money market funds as the most efficient vehicle for providing security, liquidity and competitive yield for risk-averse investors.
In terms of concentration, the largest proportion of cash holdings (39 per cent) was held in euros. However, this has declined substantially to just 23 per cent this year. US dollar holdings have regained primacy.
After several years of stability, cash positions changed significantly this year. Only 28 per cent of treasurers said their companies were net borrowers, compared with 40 per cent in 2007, perhaps reflecting the broader deleveraging trend seen over the past year. However, it is possible that treasurers anticipate that conditions will normalise within a year as 46 per cent expect to be borrowing more in the next twelve months.
The methods used to borrow funds have also changed with a marked decrease in variable rate loans for fixed rate loans. 54 per cent of borrowers used fixed-term bank debt.
Treasurers also had heightened concerns on liquidity due to the high-profile bank failures last year. They also seemed to be focussing more on credit ratings and counter-party risks.
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The credit crisis has also led to increased frequency of credit rating monitoring. While 32 per cent of respondents in 2007 monitored credit ratings only at the point of investment, 81 per cent of the respondents now perform regular scheduled reviews.
Outsourcing of cash investment to an external provider has increased significantly, from 49 per cent in 2007 to 65 per cent this year. It was also seen as a key future development in cash management. The events of the credit crisis have built a much more complex world for treasurers to navigate and it seems that they plan to depend increasingly on outside assistance.