Balancing Digital Aspirations While Addressing Risk Management Fundamentals: Observations From Citi Treasury Diagnostics

36 FX RISK MANAGEMENT: EMERGING MARKET RISK Percent of Respondents with Exposures to Currencies outside G10 Currencies 79% Emerging Market Currency Risk Management Challenges Hedging costs/ negative forward points Limited hedging instrument selection Settlement risk Lack of liquidity Basis risk between the onshore and offshore NDF (Non-Deliverable Forward) markets All of the above Meeting local regulatory approvals and requirements 57% 48% 39% 15% 19% 21% 11% Hedging Approach to Managing Emerging Market Currencies 50% All currencies are hedged the same G-10 BS exposures hedged; EM hedged very selectively/not at all 17% 16% 11% Forecasted EM risks hedged but for shorter tenors than G-10 More options used for EM risks to avoid negative forward points 6% G-10 currencies are hedged; EM currency risks are not While 79% of respondents reported having exposures to currencies outside the G-10, two-thirds (66%) report either hedging EM and G10 exposures the same, or essentially not hedging EM at all. Costs, market liquidity, and local regulatory considerations were cited as the primary challenges when managing EM currency risk. “ We recognize the repricing of risk in many EM markets, particularly lower yields and volatility, presents an opportunity to review our EM hedging strategy.” — North America Treasury Manager