Hedge Effectiveness Testing and Risk Remain the Biggest Challenge for Treasuries

Vancouver, BC and Dublin - 14 July 2011

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," said Gurpreet Banwait, Global Product Manager, FINCAD. "We've extended our web-based system, Fair Value Insight, in order to comply with regulations. Understanding hedge accounting has been a challenge for our customers and we are hopeful that the simplicity of our system and the proposed rules will take away the confusion in the market and the need for treasury professionals to rely on consultants."

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.

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