How to prepare FX exposure reports with an AI agent

An FX exposure report shows how much of each currency each entity is exposed to, against its own functional currency, and how much is hedged. The agent gathers open receivables, payables, cash, intercompany balances and forecast flows, nets them per entity, compares them with hedges in place and drafts the report. The treasurer approves it and makes every hedging decision.

What is an FX exposure report, and who owns it?

Foreign exchange exposure arises when an entity holds assets, liabilities or future cash flows in a currency other than its functional currency. A UK subsidiary that buys in dollars has a dollar exposure; a dollar-based parent with a euro subsidiary has a translation exposure on its investment. Exposure reports bring these together so treasury can see what is open, what is covered and what the hedging policy requires.

The treasurer owns the report and the hedging programme. The hedging policy, approved by the board or a committee, sets what must be hedged, how far ahead, in what proportion and with which instruments. Entity finance teams own their own data, especially forecasts. The general bounds for finance agents are in AI agents for finance.

What does the agent prepare?

1. Agent, depth 1: gathers balance sheet exposures. Open receivables and payables by currency, foreign currency cash, and intercompany balances, per entity, from the ledgers.
2. Agent, depth 1: gathers forecast exposures. Committed flows such as signed purchase orders and contracts, and forecast flows from the approved forecast, kept separate.
3. Agent, depth 1: reads hedges in place. Forwards, swaps and options from the treasury system, with maturities and the exposures they are designated against.
4. Agent, depth 2: nets and measures. Net exposure per entity and currency against the entity's functional currency, hedge cover against policy bands for each period, and a sensitivity: the profit effect of a set move in each rate.
5. Agent, depth 2: drafts the report. Exposures, cover, gaps against policy, and changes since the last report with reasons.
6. Person, treasurer: reviews and approves. Challenges forecasts, confirms the gaps and decides any action.
7. Person, treasurer or dealer: executes hedges. The agent does not deal.

What does a single entity's line look like?

Take an illustrative sterling-functional UK manufacturer that buys components in dollars and sells some products in euros. The agent finds dollar payables of 1,200,000 and dollar cash of 200,000, so a net dollar liability of 1,000,000 on the balance sheet. Forecast dollar purchases for the next three months are 3,000,000, of which 1,800,000 is already on signed purchase orders. Forwards in place cover 1,500,000. If policy requires that most committed flows be hedged, the report shows the committed amount, the cover and the gap, and leaves the treasurer to decide whether to close it.

What does the treasurer approve, and why not the agent?

The treasurer approves the numbers and decides what to do about them. Whether to hedge a gap, how much, with what instrument and at what time is a market judgement, governed by policy and executed with a bank. A hedge is a commitment to a counterparty, which is why the question of whether an agent can hedge foreign exchange exposure has a short answer.

The agent's value is in making the report complete and current. Many exposure reports are assembled monthly from spreadsheets sent by entities. The agent can refresh balance sheet exposures daily from the ledgers, so the treasurer sees changes as they happen, not three weeks later.

Method under version control. Netting rules, functional currencies, sensitivity size and policy bands are documented. Evidence: method version on each report.

Committed and forecast kept apart. Evidence: separate columns, never added together without a label.

Rates from a named source. Evidence: rate source and time on each report.

Approval. Evidence: the treasurer's sign-off before distribution.

Where does it usually go wrong?

Group currency instead of functional currency. A euro receivable in a euro-functional subsidiary is not an exposure for that entity, even if the group reports in sterling. Measure each entity against its own functional currency, then consider translation exposure separately.

Intercompany counted twice, or not at all. An intercompany loan creates exposure in at least one entity. Counting both sides at group level doubles it; eliminating both hides it.

Forecasts nobody owns. Forecast flows come from a model the entity no longer updates. The agent should show each forecast's age and owner, and flag stale ones. Forecasts are usually best taken from the approved rolling forecast rather than from separate submissions.

Hedges not linked to exposures. A forward is in place but nobody knows which exposure it covers. Report hedges against designated exposures, with unlinked hedges listed.

Board reports built from a different cut. The board sees a summary prepared separately with different numbers. Build board-level exposure summaries from the approved report, as part of the wider work of producing board reports.

What should you measure?

• Report readiness: days after period end, or frequency of refresh.
• Forecast accuracy by entity and currency, which sets how much hedging the forecast can support.
• Policy gaps found and closed.
• Corrections after approval.
• Unlinked hedges.