Do you know how exposed your company is – before the market moves?

Josephine Cetti, Chief Strategist at Nordea Denmark, argues that boards do not need to predict financial markets – but they do need to understand what market movements mean for their company, and be ready to act before pressure builds.

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Financial markets can affect the conditions under which a company operates – and sometimes very quickly. Changes in interest rates affect financing costs. Currency movements affect revenues, costs and competitiveness. And shifts in market sentiment can affect a company's access to capital.

For the board, the question is not whether we can predict the markets. The key question is: How exposed is our company, and how ready are we if conditions change?

Every company has exposure – direct or indirect

Even if your business is not directly exposed to financial markets, your clients and suppliers may be. And I would say there is not a single business out there that does not have some kind of exposure to the broader economy – whether you operate internationally or purely locally.

So even if your direct exposure is limited, it is still extremely important to understand what your indirect exposure looks like.

The board's role: Not prediction, but preparation

The most important thing is not to try to predict what will happen in the markets, but to ensure the company is prepared for whatever happens.

That starts with asking the right questions. Not just: What happened in the markets? But: What does it mean for our company, and how are we going to respond to it? The board should make a clear assessment of the company's risk appetite – how much interest-rate exposure is acceptable, how much currency risk, and how a significant market shift would impact cash flow, investment plans and financing. A risk policy agreed in advance means management can act quickly and consistently when market conditions change rather than having to make decisions under pressure.

Three pieces of advice

1. Know your exposure – and make sure you can act before you have to
   Understand the company's interest-rate and currency exposure, its financing structure and how sensitive the bottom line is to market movements. This overview should be available to the board, not just to the finance function.
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2. Decide on a risk policy before the market moves
   Deciding how much risk the company is willing to accept is far easier when markets are calm. A clear policy gives management a mandate to act decisively when conditions change – without needing to convene an emergency board discussion.
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3. Make market developments actionable
   Ask for reporting that links developments in financial markets directly to the company's situation – not just market data, but a short, clear picture of exposure, sensitivity and possible courses of action. The goal is to have the tools to act when it matters.

Want to hear more from Josephine Cetti?‍

Watch the full conversation (5 min) on Boardway Academy – sign up for free to get access.