Banking News

Corporate FX Risk Management Set for AI Overhaul – Risk.net

(6 June 2024 – Global) Banks and Fintechs are tapping into artificial intelligence (AI) for new advanced corporate FX hedging capability as machine learning algorithms enable CFOs and treasurers to adjust hedging ratios with greater flexibility.

Cole Lipsky reports for Risk.net that tech’s effectiveness is only limited by data quality. The inexorable advance of AI across core banking functions is continuing at pace. Banks and technology vendors are developing machine learning tools to help support non-financial corporates with their foreign exchange hedging decisions.

For corporate treasurers, most FX hedging activity is carried out using manual processes. Many companies do not have the same advanced technological processes, data scientists and trading strategies that sophisticated FX participants readily access. AI algorithms can analyse vast volumes of data, uncover hidden patterns, and identify valuable relationships in sophisticated ways. AI techniques are evolving rapidly, with development of clustering models one of the areas oneZero is observing the most notable early benefits for regional bank clients.

“The implementation of an optimal hedging strategy is a seemingly impossible task due to the numerous influencing parameters and the limited information processing capacity of human decisionmakers” stated Lucht Probst Associates Managing Partner Roland Probst.

“In addition, against the background of a dynamic corporate environment and volatile financial markets, a constant reassessment of the previous decisions must be made. Luckily, recent technological progress allows us to tackle these limitations: the increased availability of market information, the use of Big Data technology and digitised processes can help state-of-the-art AI to support corporates in making optimal hedging decisions.”