Topic
Treasury Risk Guides: FX, Interest Rate, Credit & Hedging
Treasury risk management is the other half of treasury. A treasury doesn't just move cash — it identifies, measures and manages the financial risks the business runs: currency, interest rates, and the counterparties it depends on. Getting this wrong can sink a profitable company; getting it right keeps risk inside a deliberately chosen appetite.
Written from 18 years in SAP FI & TRM — the R is Risk Management — these are the core concepts and decisions explained plainly, with what usually goes wrong. It's educational treasury practice, not investment advice. Start with what treasury risk management is, then follow the exposures that matter to you.
22 articles · ~131 min, in 9 sections — each in reading order
Foundations
1 article · ~5 minWhat treasury risk management is — the one article to read before the exposures, instruments, measurement and accounting that follow.
What Is Treasury Risk Management?
How a company identifies, measures and manages its financial risks — liquidity, FX, interest rate, counterparty — keeping risk within appetite, not at zero.
Exposures
2 articles · ~9 minThe exposures themselves: FX risk as transaction, translation and economic exposure, then commodity price risk.
FX Risk: Transaction, Translation and Economic Exposure
FX risk comes in three types — transaction, translation and economic exposure. Why classifying them correctly is where FX management actually starts.
Commodity Price Risk in Corporate Treasury
Commodity price risk: when the prices of what a company buys or sells hurt its finances. How it differs from FX and interest-rate risk, and how it's managed.
Hedging
4 articles · ~22 minHow FX exposure is hedged: natural vs financial hedging, forwards, options and swaps, how much to hedge and when, balance sheet vs cash flow hedging.
Natural Hedging vs Financial Hedging
Natural hedging offsets exposures by structuring the business; financial hedging uses instruments for what's left. Why you reduce naturally first, then hedge.
FX Hedging Instruments: Forwards, Options and Swaps
FX hedging instruments explained: forwards lock a rate, options give the right for a premium, swaps exchange cash flows. Which suits which exposure.
FX Hedging Strategy: How Much to Hedge and When
FX hedging strategy: deciding your hedge ratio, tenor and timing — how much of an exposure to hedge, over what horizon, and static versus layered.
Balance Sheet FX Hedging vs Cash Flow Hedging
Balance sheet FX hedging offsets remeasurement of booked FX balances, so it rarely needs hedge accounting. How it differs from cash flow hedges, and SAP's take.
Interest Rate
3 articles · ~17 minInterest rate risk, the instruments that hedge it (swaps, caps, collars, FRAs), and the benchmark reform from LIBOR to SOFR.
Interest Rate Risk in Corporate Treasury
Interest rate risk is when rates raise floating-rate debt costs or cut investment income. The main lever is the fixed/floating mix; swaps and caps adjust it.
Interest Rate Hedging: Swaps, Caps, Collars and FRAs
The instruments treasury uses to hedge interest rate risk — swaps fix the rate, caps insure against rises, collars fund the cap, FRAs lock a single period.
Interest Rate Benchmark Reform: LIBOR to SOFR
The move from LIBOR to risk-free reference rates like SOFR and SONIA — why it happened, how RFRs differ, and what the transition meant for corporate treasury.
Measurement
3 articles · ~23 minMeasuring the risk: Value at Risk, then Cash Flow at Risk, then stress testing and scenario analysis.
Value at Risk (VaR) in Corporate Treasury
What Value at Risk is, how it's calculated, and why corporate treasuries use it to size market risk — plus the limits that make VaR only half the picture.
Cash Flow at Risk (CFaR) Explained
Cash Flow at Risk measures the worst shortfall in a company's cash flow versus plan over a period at a chosen confidence level — the corporate answer to VaR.
Stress Testing and Scenario Analysis in Treasury
Treasury stress testing and scenario analysis probe the severe tail that VaR and CFaR leave undescribed — and fail on imagination, not maths.
Counterparty
2 articles · ~10 minCounterparty and credit risk in treasury, then the ISDA agreements, CSAs and collateral management that contain it.
Counterparty and Credit Risk in Treasury
Counterparty risk is the risk that a bank or partner treasury relies on fails to meet its obligations. Managed with limits, diversification and monitoring.
ISDA Agreements, CSAs and Collateral Management
How the ISDA Master Agreement, its schedule and the Credit Support Annex document and collateralise the counterparty risk in over-the-counter derivatives.
Accounting
3 articles · ~24 minHedge accounting under IFRS 9 and ASC 815, the documentation it requires, and effectiveness testing and the hedge ratio.
Hedge Accounting Explained: IFRS 9 vs ASC 815
Hedge accounting under IFRS 9 and ASC 815: the three hedge types, designation, effectiveness, rebalancing, de-designation and cost of hedging, compared.
Hedge Documentation for Hedge Accounting
Hedge documentation: what you must designate at inception — objective, instrument, hedged item, risk and effectiveness method — for hedge accounting.
Hedge Effectiveness Testing and the Hedge Ratio
Hedge effectiveness testing proves your hedge offsets the hedged risk — the evidence you need to keep hedge accounting and avoid artificial P&L swings.
Governance
2 articles · ~11 minRisk appetite and risk limits, then the treasury risk management policy that writes them down.
Risk Appetite and Risk Limits in Treasury
Treasury risk appetite is how much financial risk a company chooses to bear; risk limits are the measurable guardrails that enforce it — why both matter.
How to Write a Treasury Risk Management Policy
How to write a treasury risk management policy: turn risk appetite into enforceable rules — permitted instruments, limits, approvals — so hedging isn't a bet.
Reporting
2 articles · ~10 minExposure data quality first, then aggregating and reporting risk across entities and systems.
Treasury Exposure Data Quality
Every hedge and risk decision rests on exposure data. How to make it trustworthy — accuracy, completeness, timeliness, adaptability — and who owns each.
Treasury Risk Aggregation & Reporting
How to aggregate treasury risk across exposures, entities and instruments — and report it so it drives a decision, not just fills a pack.
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Frequently asked questions
What is treasury risk management?
Treasury risk management is the discipline of identifying, measuring, managing and monitoring the financial risks a company is exposed to — principally liquidity risk, market risk (foreign exchange and interest rate), and counterparty or credit risk. Its aim is not to eliminate risk, which is impossible and often undesirable, but to keep it within a deliberately chosen risk appetite, so that financial risk doesn't threaten the business or its plans. It's a core treasury function alongside cash and liquidity management.
Full article →What are the three types of FX exposure?
The three types of foreign exchange exposure are: transaction exposure, the risk on specific committed cash flows denominated in a foreign currency (like a foreign-currency receivable or payable); translation exposure, the accounting effect of consolidating foreign subsidiaries' financial statements into the group's reporting currency; and economic exposure, the longer-term effect of currency movements on the company's competitive position and future cash flows. Each arises differently and is managed differently.
Full article →What is hedge accounting?
Hedge accounting is an optional accounting treatment that aligns the timing of gains and losses on a hedging instrument with the item it hedges, so the income statement shows the offset instead of artificial volatility. Without it, a derivative is marked to market through profit or loss every period while the hedged item often is not recognised yet. To use it, a company must formally designate and document the relationship at inception and show it meets the effectiveness requirements of its standard, IFRS 9 or ASC 815.
Full article →What is risk appetite in treasury?
Risk appetite is the deliberate statement of how much of each financial risk — foreign exchange, interest rate, counterparty, liquidity — a company is willing to bear in pursuit of its objectives. It's a choice, not an accident: management and the board decide how much uncertainty they'll accept rather than hedge away, recognising that removing all risk is both impossible and expensive. Appetite is set at board or treasury-committee level, and it's the anchor everything else in treasury risk management is measured against.
Full article →What are the main financial risks treasury manages?
The main ones are: liquidity risk (not having cash available when needed), foreign exchange risk (currency movements hurting cash flows or the balance sheet), interest rate risk (rate movements raising borrowing costs or cutting investment income), and counterparty or credit risk (a bank or trading partner failing to meet its obligations). Some treasuries also manage commodity price risk. Each is identified, measured and managed differently, but all follow the same framework.
Full article →Work with me → — the workflows this hub documents are exactly the kind I redesign with AI: slow, manual, exception-heavy, and still answerable to a control review.