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Finance Chiefs Concerned about Euro Zone Debt Crisis Impact in 2012

Finance Chiefs Concerned about Euro Zone Debt Crisis Impact in 2012

With volatility still characterizing foreign exchange markets, chief financial officers around the world are expressing concerns about their own prospects heading into 2012, even with some positive

With volatility still characterizing foreign exchange markets, chief financial officers around the world are expressing concerns about their own prospects heading into 2012, even with some positive news finally coming out of the euro zone debt crisis.

Reuters reports that for the first time in a while, there appears to be some hope coming out of the annual Davos World Economic Forum that the euro zone debt situation is beginning to improve. From pressure being lifted off of Italy and Spain to the MSCI world equity index increasing by approximately 5 percent so far this year, market sentiment finally appears to be picking up, the news source said.

Greece, which is seeking a bond swap agreement that could help it to avoid a worse default, seems to no longer be the principal concern among analysts, who are increasingly viewing the country's issues as a one-off situation separate from the rest of the euro zone, Reuters noted.

"There is an increasing sense that Greece is different from the others and that the contagion elsewhere could be contained," Giles Keating, head of private banking research at Credit Suisse, told the news source before the first full day of the Forum on Wednesday, January 25. "There is a sense of political will and mechanical capability to do so."

The issues in Greece still do have some pull, however, as concerns about bond agreement talks forced the euro and European stocks to fall on January 25, despite strong economic data from Germany and solid profit numbers from technology leader Apple, Inc., Reuters said.

As a result, the euro fell back below $1.30 against the U.S. dollar and further from the three-week high of $1.3063 on January 24. Concerns were also spurred by a report that Britain's economy had contracted more than anticipated during the final three months of 2011, according to Reuters.

With these mixed reports and seemingly day-to-day volatility in the euro zone, chief financial officers from companies around the world are having a difficult time projecting their 2012 numbers and navigating foreign exchange markets.

Evidence of this can be seen in a recent Deloitte CFO Signals survey, which found optimism among North American finance chiefs dropped from the previous quarter, with the European financial issues remaining one of the major obstacles. This has spurred many finance chiefs around the world to offer cautious projections for 2012 in terms of both growth and hiring plans, according to the survey.

According to Reuters, international firms are also spending more time in discussions about how to hedge currency risk, specifically for euro earnings and transactions with the debt crisis still looming.

Tools such as currency options represent one manner in which CFOs and CEOs are dealing with euro zone uncertainty, as this can reportedly enable them to buy or sell a currency at a certain exchange rate if they so choose. This can help protect against extreme market volatility, according to Reuters.

Regardless of the strategy, those holding executive jobs within companies are keeping their ears to the ground and ensuring that they are prepared for the possible worst-case scenario in the euro zone.

"Any CFO or any CEO of a company today, much like in the late 70s, is spending more time thinking about alternate outcomes," Vasant Prabhu, chief financial officer of U.S. hotel operator Starwood Hotels & Resorts Worldwide Inc., told Reuters. "And currencies clearly are an element of that right now."