The swiss army knife for Analysts – Excel is the universal tool to solve many challenges. As it is flexible and easy to use, it often ends up being in the backbone in many critical processes just because “if it isn’t broken then don’t fix it!”. Some studies have found that Managements' gut-feeling of number of shadow IT processes that are run must be multiplied by 15.
Some still remember the London Whale - when JPMorgan Chase lost more than $6 billion in its “London Whale” incident, in part due to Excel spreadsheet errors, including alleged copying and pasting of incorrect information from multiple spreadsheets. In 2012 it became clear to the market that one trader at JPM was counterpart on almost all the CDSs in London. JPM’s risk management failed to notice this due to risk processes run in Excel and copy-paste errors made the Excel sheet miscalculate the risk. To unwind the huge CDS positions, JPM had to endure a considerable loss.
This is of course, an example of when it goes terribly wrong – unfortunately, it is not a single “whale” – with 150 million users, Excel is widely used as a fast track to getting stuff done inexpensively, resulting in huge errors in the overall calculations and losses for their companies. This is also the road to Shadow IT, with the downside of undocumented processes, not scalable, inconsistent business logic and lack of security among many cons.
Human errors are prone to happen, as several studies confirm, and although Excel can be a useful tool in calculations, the possibility of errors ending up in spreadsheets grows as the immense amount of data increases. Today, many companies are still running their FX Hedging programs in Excel. This is because they want to do something, and the analyst can process the numbers needed to excel. The problem, however, starts when one of the following scenarios occurs:
documentation of the Excel sheet is not up to date or completely missing.
not remembering all the logic - e.g. hidden cells, expanded tables, manual tasks, etc.
no one has ownership of the Excel sheet and data sources.
at some point, the analyst has moved on to another position, leaving the next FX trader to figure out the logic used in the trading sheets.
Excel is upgraded.
Since FX Exposure is often very high and fluctuations have huge P/L impact - the result is a high exposure in FX handled in a risky solution. Even though many have processes that will catch errors, these controls run the day after trading – that means these companies are only one tweet away from disaster. Altogether it is clear: when dealing with a hazard such as the FX risk, it should be hedged with precision. Miscalculations and false estimations can have serious consequences, as highlighted with the London Whale case. While Excel can be useful for certain calculations and served a purpose in the past, there is far too high risk involved when it comes to FX hedging; new ages require new solutions.
SaepioX is designed for FX hedge professionals – making the hedge processes as smooth as possible, so time is spent on FX Trading, not on data crunching. Stop using tools that are not built to support your business and processes and get into this millennium and demand solutions that do all the tedious work for you.