If You Ask Me: A Global Banker Reflects on Our Times

Wriston, Walter B.


The Foreign Exchange Game


You've apparently had a fair amount of success in foreign exchange operations. I was curious whether you'd advise a medium-size or large corporation, or international firm, to develop an in-house capability for monitoring exchange rate fluctuation? Or would it be better to rely on banks and other consulting-type services?

Rule 8 of the Financial Accounting Standards Board causes corporations to do uneconomic things in foreign exchange in order to arrive at an acceptable accounting result. It's a poor regulation, to put it mildly. It compels companies to trade in foreign exchange and to hedge their positions. The big multinational companies already have enormous capabilities in this treasury area. Most of the big banks, like Citibank or Morgan or Chase or First Chicago or whatever, have good capabilities for advising medium-size corporations on the techniques of hedging their exchange positions. But they still need someone within the corporation who understands the spot and forward markets.[17]  I don't think spending a lot of money building up that capability would be too useful an employment of the stockholders' assets.

It seems that, recently, multinationals and other firms have been considered very lucky just to break even in their forward operations. In light of that, do you feel that a corporation should attempt to take a fairly dynamic approach, moving into forward markets and money markets? Or do you think they're better off just protecting themselves by balancing assets and liabilities and so forth?

When you try to turn foreign exchange into a profit center, you're missing the point. What we do in the Citibank, as a matter of policy, is attempt to hedge our capital overseas 100 percent. There are several countries where you can't hedge at the moment--Brazil is the biggest example. Australia really has no forward market of any magnitude.

Basically we don't try to make money or lose money on our capital position. We hedge it. But it costs us money, just like an insurance premium. Where we make our money is in trading as an intermediary for other companies who are trying to do the same--in other words, to hedge their capital.


[17] In its simplest terms, the object of positioning and hedging is to minimize the risks associated with future fluctuations in the exchange rate between currencies. In the forward market a company purchases a foreign currency for delivery on a future date at a specified exchange rate. The foreign exchange dealer who makes this contract then assumes the risk that the exchange rate between the two currencies will vary during the time between contracting and execution. The foreign exchange dealer, in turn, may hedge or offset that risk by contracting a similar, but reverse, transaction between the same two currencies. Foreign currency transactions to be executed immediately or "on the spot" are conducted in the so-called spot market.

  • The document was created from a compilation of interviews and question and answer segments with Walter B. Wriston which was later compiled into "If You Ask Me: A Global Banker Reflects on Our Times" in 1980. The original speech is located in MS134.001.034.00018.
This object is in collection Subject Temporal Permanent URL
Component ID:
To Cite:
TARC Citation Guide    EndNote
Detailed Rights
View all images in this book
 Title Page
If You Ask Me: A Global Banker Reflects on Our Times
I: Getting Down to Fundamentals
The Big Cop-out
You Can't Go Bail for Everyone
Risk Is What It's All About
II: Some Basic Ills of the Body Politic
Lincoln Wouldn't Have Made It
Unpredictable Is a Dangerous Country
The Pitfalls of Single-issue Politics
Expect To Get Zapped
The Perils of Legal Pollution
The Injustice of Our Tax System
Those Wonderful People Who Bring You Inflation
Stop the Presses
Silly Premises Lead to Nutty Conclusions
Easier Said Than Done
III: New York, New York
New York City Is Alive And Well
The Road Back
IV: Careers
Rx for Happiness
Good Forward Planning
Dull Job?
A Simple Matter of Survival
Making It at Citibank
What Fast Track?
No Hiding Place
V: Once Around the World Quickly
South Africa
China: A Matter of Timing
The Real Significance of Iran
Iran and the Money Markets
Fashions in Country-criticizing
VI: The Global Financial Scene
The Elusive Eurodollar
De Facto Payments Mechanism
Too Big To Move
The Foreign Exchange Game
They Can't Leave the System
Baskets of Money
Swiss Francs
The Value of a Dollar
Not a Loss Since 1897
A Rational View of LDC Loans
Free Trade Benefits Consumers
The Destructive Costs of Regulation
The Big Rip-off
A Real Entitlement
Can Regulations Prevent Bum Loans?
The Insidious Side of Controls
Competition in Regulation
VIII: The Shape of Things To Come
Not As Big As You Think
What Lobby?
Armageddon Is Late, as Usual
Some Simple Facts about Interest Rates
An Expensive Luxury
How Big Is Big?
What We Did Yesterday Won't Work Tomorrow
A Matter of Semantics
Unpredictable Is a Dangerous Country
Privacy: A Serious Problem
The Unseen Revolution
Things Are Going To Be Different
Take the Handcuffs off Everybody
The Gray Areas of Lending
No Mouse under the Rug
Thank God We Don't Have National Banking
Competition Keeps You Awake
Accounting for Loan Losses
Not a Utility
People Like It
Computer Frauds
Some Final Words on Responsibility
About the Author