Many organizations believe they are well-hedged. Fewer can explain how those hedges behave under stress. The real risk is not the absence of hedging — it is the illusion of control created by incomplete valuation frameworks.
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Treasury Clarity Series
Article 2 of 6 by Santhosh "Sonny" Koritala
Many organizations believe they are well-hedged. Fewer can confidently explain how those hedges behave under stress.
In today's volatile environment, the real risk is not the absence of hedging — it is the illusion of control created by incomplete valuation frameworks.
This article challenges a common assumption in treasury: that hedge presence equals risk management. It introduces a more rigorous standard — one where valuation integrity, data discipline, and governance architecture define whether a hedge program actually delivers stability or quietly introduces new forms of volatility.
The most resilient treasury organizations are not the ones with the most sophisticated instruments. They are the ones with the clearest understanding of what those instruments actually do — under all conditions.
The Comfort of Being "Hedged"
In most organizations, the presence of a hedge program creates immediate confidence.
On paper, everything looks aligned.
But beneath that surface, a more important question often goes unasked: Do we truly understand how these positions behave when markets stop behaving normally?
Because that is where the difference lies. Not in whether hedges exist. But in whether they are understood, measured, and governed with precision.
The Most Dangerous Assumption in Treasury
There is a subtle but critical assumption that shows up repeatedly across organizations:
The hidden assumption
"We have hedges in place,
so this risk is managed."
In reality, this is only partially true. Hedges reduce exposure — but they also introduce:
In stable markets, these layers remain invisible. In volatile markets, they surface quickly — and when they do, the conversation shifts from risk management to risk explanation.
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About the Author
Treasury & Finance Transformation Leader
Santhosh Koritala is a treasury and finance transformation leader with deep expertise in derivatives, hedge accounting, and technology-enabled treasury design. He advises CFOs and treasury teams navigating complexity with clarity.
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