What are the most effective ERM frameworks for managing foreign exchange risks?

1 COSO Framework

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) developed a widely used ERM framework that consists of eight components: internal environment, objective setting, event identification, risk assessment, risk response, control activities, information and communication, and monitoring. The COSO framework helps MNEs to establish a risk culture, align their objectives with their risk appetite, identify and assess their FX risks, design and implement appropriate responses, monitor and report their FX exposure, and continuously improve their ERM processes. The COSO framework can be supported by TA tools such as trend analysis, volatility indicators, and chart patterns to identify and quantify the FX risks and opportunities.

2 ISO 31000 Framework

The International Organization for Standardization (ISO) published a standard for risk management (ISO 31000) that provides a generic and flexible ERM framework that can be adapted to any organization and context. The ISO 31000 framework consists of three elements: principles, framework, and process. The principles describe the characteristics of effective risk management, such as being integrated, structured, dynamic, and transparent. The framework outlines the components of risk management, such as leadership, policy, planning, implementation, evaluation, and improvement. The process describes the steps of risk management, such as communication, scope, identification, analysis, evaluation, treatment, monitoring, and review. The ISO 31000 framework can be enhanced by TA tools such as moving averages, oscillators, and candlestick formations to analyze and evaluate the FX risks and treatments.

3 RIMS Framework

The Risk and Insurance Management Society (RIMS) developed a comprehensive and practical ERM framework that focuses on the value creation and protection aspects of risk management. The RIMS framework consists of five steps: strategy and objective setting, risk identification and assessment, risk response and control, risk communication and reporting, and risk governance and culture. The RIMS framework helps MNEs to align their risk management with their business strategy and objectives, identify and assess their FX risks using qualitative and quantitative methods, select and implement the best risk responses and controls, communicate and report their FX exposure and performance, and foster a risk-aware and resilient culture. The RIMS framework can be complemented by TA tools such as trendlines, support and resistance levels, and Fibonacci retracements to select and implement the best risk responses and controls.

4 GARP Framework

The Global Association of Risk Professionals (GARP) developed a holistic and integrated ERM framework that covers the four dimensions of risk management: governance, process, integration, and infrastructure. The GARP framework helps MNEs to establish a sound risk governance structure, implement a consistent and effective risk process, integrate risk management across the organization and its functions, and develop a robust risk infrastructure and technology. The GARP framework can be applied to manage FX risks by using TA tools such as Bollinger bands, relative strength index, and Elliott wave theory to measure and monitor the FX risk exposure and performance.

5 M_o_R Framework

The Management of Risk (M_o_R) framework is a best practice guidance for risk management that was developed by the UK government and is widely used in the public and private sectors. The M_o_R framework consists of four perspectives: strategic, program, project, and operational. The M_o_R framework helps MNEs to manage FX risks at different levels of the organization and its activities, ensuring alignment and consistency. The M_o_R framework can be used to manage FX risks by using TA tools such as MACD, stochastic, and Ichimoku cloud to identify and assess the FX risks and trends.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?