Quickly refresh your treasury knowledge? Download our eBook: What is Treasury?

08-09-2022 | treasuryXL | LinkedIn |

Hello Treasurers, CFO’s, Cash Managers, Controllers and other Finance addicts, how do you quickly refresh your treasury knowledge? Or how do you explain ‘What Treasury is’ to family and friends? Well, there is a simple solution for it. Download our eBook: What is Treasury? 

This eBook compiled by treasury describers all aspects of the treasury function. This comprehensive book covers relevant topics such as Treasury, Corporate Finance, Cash Management, Risk Management, Working Capital Management.

This eBook was prepared by treasuryXL based on the most useful best practices offered by Treasury professionals throughout the previous years. We compiled the most crucial information for you and wrote clear, concise articles about the key topics in the World of Treasury.

We took a deeper dive into each of the above-mentioned treasury functions and highlight:

  • The purpose of each named Treasury function (What is?)
  • What specialists do
  • Examples of Activities
  • Summary of Frequently Asked Questions and answers
  • Conclusion

How to receive the eBook ‘What is Treasury’ for Free?

We simply giveaway two presents for you! By signing up for our newsletter you will automatically receive the following in your inbox:

  1. On Fridays, our Coffee Break weekly newsletter will land in your inbox. In this weekly newsletter, we will highlight the whole week full of the latest treasury news within our community.
  2. The 41 pages eBook, What is Treasury?
Subscribe and Download

 

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Welcome to our community and have fun reading!

 

 

Kendra Keydeniers

Director, Community & Partners at treasuryXL

 

 

 

 

What personality traits do treasurers have?

08-09-2022 | Maximo Santos Miranda | treasuryXL | LinkedIn

What personality traits and qualities should make a good treasurer? The results of the Treasurer Test help to better understand a candidate’s natural predisposition to specific personality traits. Editor of the Treasurer Test, Máximo Santos Miranda, gives us his take on what the most important personality traits are that treasurers should have.

Source: Treasurer Test, brand by treasuryXL

By Máximo Santos Miranda

Qualities and Personality Traits a Treasurer should have

From my point of view, flexibility is one of the most important qualities a treasurer should possess. Each company is a different world, with a different corporate culture and non-identical needs. A good treasurer must adapt to each specific reality. Only in this way will he be able to achieve the best results for the company.

Another important trait that a good treasurer must have is proactivity. It is always possible to do things better and this is especially important in treasury, because of the great importance of treasury functions. An excellent treasurer should always think of new ways to improve the function and this fact also requires that our treasurer has a deep sense of curiosity and is open to changes and the new dynamics of the market. This means that the treasurer must be proactive in meetings with banks and explore new market trends and products launched by the financial system. It is also important to attend treasury meetings where our treasurer can see what strategies other colleges are using to solve problems that are similar or identical to ours. In this sense, our treasurer must constantly learn to stay informed and it is especially important that our treasurer be a technology enthusiast. In this sense, it is crucial to read trade magazines and take short courses, but not in a passive way. Our treasurer should always think whether or not the things he reads or listens to are applicable to the company he works for. This is the only way to continuously improve the treasury function, which means more and more efficiency in the use of financial resources.

In addition, our treasurer must have excellent communication skills. The treasury department must be in permanent contact with external suppliers (banks) and with internal customers (accounting, tax, human resources, purchasing, planning ….) for its own characteristics and this function cannot be developed properly if our treasurer does not have exceptional communication skills. It must be taken into account that for one reason or another, treasury is in contact with all the different departments within the company, either to ask for information or to provide information. When negotiating with banks or resolving operational incidents with them, this skill is critical if we are to be successful in both issues.

Accuracy and precision are other important traits a good treasurer must possess. Payments and collections, for example, must always be made on time (not before and not after) and good forecasting always requires a high degree of accuracy. This trait must be complemented by a quick mind. In treasury, you often have to make decisions very quickly. If you make a mistake, the consequences can be enormous and therefore a reliable treasurer must combine accuracy with a high and logical speed of execution. Common sense should always guide the behavior of an excellent treasurer.

And finally, the soft skills described earlier must be complemented by technical knowledge. A solid treasurer should have both skills and when this is combined with extensive experience in a wide variety of companies and sectors, our treasurer will add value that will be hugely positive for the entire organization and not just for the treasury department itself.

So in sum, personality traits that matter to treasurers:

  • Flexibility to adapt to each company’s specific reality
  • Proactivity with a deep sense of curiosity and openness to changes and new market trends
  • Excellent communication skills for communication with internal and external stakeholders
  • Accuracy and precision in payments, collections and forecasting
  • Quick decision-making ability with a focus on common sense
  • Complemented by technical knowledge and experience in various companies and sectors.

Your sincerely,

Máximo Santos Marinda

 

 

Let us inspire you about the Treasurer Test!

 

Contact manager of the Treasurer Wout directly. Together we will explore how the Treasurer Test can be of benefit to you.

Wout van Wijlick, Manager of the Treasurer Test & Marketing Coordinator at treasuryXL

RECAP | Cash and Treasury Management Event Copenhagen | By Pieter de Kiewit

06-09-2022 | cashandtreasury.dk | treasuryXL | Pieter de Kiewit | LinkedIn

 

Last week, Pieter de Kiewit was Chairman of the Cash & Treasury Management Conference in Copenhagen. Pieter decided to take the effort to share his experience with you.

 

By Pieter de Kiewit, Chairman of the event

Corporate treasury events come in many shapes and sizes. Earlier this year, I reported on my visit to Mannheim, in a few weeks you can expect a blog about Vienna, in this blog more about Copenhagen. I can already tell you that I liked the format and set-up of this event.

Corporate treasury markets will always be very niche. The event organiser, Insight Events, targeted a mainly Danish-Scandinavian audience. The sessions were all in English and the venue was the beautiful Hotel D’Angleterre in the heart of Copenhagen. It was also a conscious choice to keep the audience small, just under 150 and of high calibre: almost all treasurers, most of them quite senior and well informed. The consequence of this choice is also that there were no parallel sessions, all sessions were attended by the entire audience. During the break one could meet the various treasury service and product providers, including treasuryXL partner Nomentia.

Last year, I was asked to present on “how to get hired for your next treasury position” and had some questions during other sessions. Based on the bond we built, I was asked to be moderator/chairman of this year’s event. I thought it was a great gig, if it was appreciated, you just have to ask others.


The programme consisted of presentations and panel discussions led by Nordea. I was impressed by the level of quality offered. There were two macro-economic presentations, one by the Chief Economist of Nordea, a well-known TV personality in Denmark and the other by a senior director of EKF, the Danish export credit agency. Both gentlemen brought very thorough interesting insights but, given the current global developments, also a gloomy and dark future.

Another highlight was the input on ESG financing where treasurers and senior sustainability experts together informed the audience about the reality of this type of funding making in, at least for me, an inspiring way. In a cleverly constructed format, credit rating and Basel IV developments were linked in a session with the most questions from the audience.

In other, more traditional but also essential and informative sessions, building treasury teams, mergers and career development were on the agenda. And the non-treasury topic was brought up in a very entertaining way about a hacked company that does not want to pay a ransom. Relevant not only for treasurers and definitely food for thought.

Looking back, I see a very successful and high quality event. On a personal note, I always enjoy the international in my work. Me as a Dutchman, extrovert, direct and sometimes unintentionally rude, communicating with civilised, reserved Scandinavians who do not ask too many questions hopefully did not result in not being invited for next year. We shall see…..

 

 

 

 

 

 

 

Thanks for reading!

Pieter de Kiewit

Managing working capital in challenging times | Attend on December 1st 2022

31-08-2022 | treasuryXL | The Working Capital Forum | LinkedIn |

 

Are you a Corporate Treasurer? Attend The Working Capital Forum Europe 2022 for free: use code TXL22CG

  • Banks, fintechs, and other solution providers can get 25% off the cost of a ticket using this TreasuryXL code: TXL2225

 

 

Mark your calendar for the 1st  of December 2022! The Beurs van Berlage in Amsterdam will open the doors for The Working Capital Forum Europe. This event brings together leaders in treasury, procurement, and payments to share ideas and techniques for better working capital management across supply chains.

That’s never been so important as in these times of rising interest rates, inflation, and supply chain shocks, when managing working capital is everyone’s concern.

From supply chain finance to accurate cash forecasting, solutions for every component of working capital management will be discussed on stage, demonstrated in our information area, and examined in our workshops at the world’s largest specialist working capital and supply chain finance event.

We’re delighted to return to Amsterdam for this one-day live event, with main stage keynote sessions, panel debates, and breakout workshops and demos.

If you’re interested in optimising working capital in your organisation, you need to join us in Amsterdam for the most productive day you’ve had in years.

Among the topics we will be covering are:

  • Cash forecasting and cash visibility
  • Payables finance
  • Receivables finance
  • Optimising receivables – get paid faster
  • Inventory management and inventory finance
  • Supply chain finance
  • ‘Deep tier’ supply chain finance
  • Funding options for trade and supply chain finance
  • Using working capital tools for ESG objectives
  • Credit insurance
  • Disclosure rules on supplier finance
  • Ratings agencies and their view of working capital solution

TO REGISTER AND FIND OUT MORE VISIT:  WORKING CAPITAL FORUM EUROPE 

Visit the Working Capital Forum: https://www.workingcapitalforum.com/

Join our events here: https://www.workingcapitalforum.com/events

Enter the Working Capital and Supply Chain Finance 2022 Awards here: https://www.workingcapitalforum.com/awards.html

 

 

CFO Perspectives: How to set a currency hedging strategy

30-08-2022 | treasuryXL | Kantox | LinkedIn |

How should a CFO set their currency hedging strategy, to protect cash flows or to minimise P&L impact? In the fourth edition of CFO Perspectives, we’ll explore how senior finance professionals can choose the right path when it comes to hedging.

Credits: Kantox
Source

According to a recent HSBC report, the objectives of currency hedging are pretty extensive. While three-quarters of surveyed participants mention forecasted cash flows as an FX risk that their company hedges, 61% cite balance sheet items as the risk they hedge. Other participants say minimising the impact on consolidated earnings is one of their FX hedging objectives and KPIs.

The debate about whether to hedge cash flows or earnings —by removing the impact of accounting FX gains and losses— is as old as currency hedging itself. The two sides have powerful arguments in their favour.

Cash flow hedging vs balance sheet hedging

What’s the correct approach?

The debate will likely never be settled entirely. No single approach for currency risk management is definitively better than another. Different opinions may reflect the type of business activity, the preferences of investors and even managers’ own biases.

The key step for any CFO looking to establish or revamp their business’s currency hedging program is to clarify what the firm is trying to achieve. Only with enough clarity on this matter can the dangers of ad hoc or unsystematic hedging be avoided. 

So, where does that leave us? This blog brings some welcome news to beleaguered CFOs as they take sides. While nothing replaces clarity regarding the key objectives of currency management, technology now makes it possible for risk managers to:

  1. Use a single set of software solutions to run cash flow and balance sheet FX hedging programs
  2. Automate the time-consuming and resource-intensive process of implementing Hedge Accounting

This is big news indeed!

Practical steps on the journey to the FX hedging decision

While a certain amount of debate and discussion is unavoidable when deciding the goals of a firm’s FX hedging program, a number of practical steps can be followed to determine what should be hedged.

These steps share a central concern about protecting and enhancing the firm’s operating profit margins by giving particular importance to the pricing characteristics of each business division.

These steps include:

  1. Steer clear of ad hoc or unsystematic hedging. This is a path to nowhere and should always be avoided.
  2. Set the goals of your FX strategy, such as defending a campaign or budget rate, achieving a smooth hedged rate over time, hedging transaction exposure, or removing the impact of accounting FX gains and losses.
  3. Based on these goals, define the best hedging program while imagining that infinite resources can be deployed. By doing so, CFOs can squarely focus on their FX goals.
  4. Consider using Currency Management Automation to seamlessly execute all the steps of your program, breaking internal silos and ensuring connectivity with your own company systems (ERP, TMS).
  5. Only then ‘prune’ the strategy and adjust it to the available resources, while measuring the impact —in terms of risk, costs and growth— of this adjustment.
  6. Use technology to automate the process of compiling the required documentation for Hedge Accounting.

In other words: to set a currency hedging strategy you need to do away with outdated constraints. Technology is putting to rest the traditional view of currency management as a resource-intensive activity. So the message is: give priority to your FX goals, not to the resources currently at hand.

Read the third edition of our CFO Perspectives series, 5 ways CFOs can increase the efficiency of treasury operations.

CFO Perspectives: 5 ways CFOs can increase the efficiency of treasury operations

16-08-2022 | treasuryXL | Kantox | LinkedIn |

In the third edition of CFO Perspectives, we’ll draw from our work with CFOs to explore five ways senior finance executives can increase the efficiency of treasury operations using purpose-built software solutions. 

Credits: Kantox
Source

According to a recent HSBC report, as many as 81% of CFOs view the digitisation of treasury processes as an area of increasing importance. The same survey shows that technology has moved from ‘nice to have’ to a key differentiator for treasury. 

The good news is that ‘special purpose’ technology exists that —working alongside your existing systems (TMS, ERP)— allows CFO’s and finance teams to dramatically boost the efficiency of treasury operations.

In this blog, we briefly present five areas of improvement across the FX workflow. Taken together, they present a unique opportunity for CFOs to turn the ‘digital treasury’ into a day-to-day reality, allowing members of the finance team to remove operational risks while devoting more time to value-adding tasks.

Improvements across the FX workflow

Currency management is a process undertaken in three different phases. In the pre-trade phase, FX-related pricing is managed alongside the crucially important collection and processing of the firm’s exposure. The trade phase, quite naturally, is concerned with trade execution, primarily through forward FX contracts. Finally, the post-trade phase covers accounting, reporting and analytics processes and the ‘cash flow moment’ of payments and collections.

In all of these phases, easy-to-install software solutions provide tangible improvements in terms of the efficiency of treasury operations.

These improvements include:

Improvement 1: Set a strong ‘FX rate feeder’

Pain point: Commercial teams often lack the capability to use the currency rates they need to price in a data-driven and efficient way. With favourable forward points, they could use the forward FX rate to price more competitively without hurting budgeted profit margins. With unfavourable forward points, pricing with the forward rate would allow them to remove excessive markups.

Improvement: Whatever the number of transactions involved, automated solutions to price with the required FX rate can be quickly scaled to all the required currencies, with the pricing markups per client segment and currency pair requested by commercial teams.

Improvement 2: Process all types of exposure

Pain point: When it comes to collecting the firm’s exposure to currency risk, most Treasury Management Systems (TMS) are designed with accounts receivables/payables in mind. While this works fine for balance sheet hedging, the focus on accounting items precludes the automation of cash flow hedging based on the exposure collected earlier — firm commitments and forecasts for budget periods. 

Improvement: API-based solutions allow finance teams to automate the crucially important process of capturing the relevant type of exposure information and run a variety of cash flow hedging programs, including combinations of programs that require more than one type of exposure data. 

Improvement 3: Connect the phases of the FX workflow

Pain point: The trade phase of the FX workflow is where most of the attention of CFOs has been placed, as Multi-Dealer Trading platforms such as 360T have reduced the cost of FX trading for corporations. But while the execution of trades is oftentimes manually initiated, most systems lack the capability to fully automate the process of triggering trades.

Improvement: What special-purpose software brings is the capability not only to automate the trade part of the workflow —via connectivity with Multi-Dealer platforms—but also to link it to the pre-trade phase as well by ensuring that trades are executed at the right moment in time.

Improvement 4: Automate Hedge Accounting

Pain point: Compiling the documentation required to perform Hedge Accounting can be a costly and time-consuming process, as hedge effectiveness is assessed in by comparing changes in the fair value of the hedged item to changes in the fair value of the corresponding derivative instrument. This forces companies to rely on highly skilled personnel to manually execute these tasks.

Improvement: The perfect end-to-end traceability of automated solutions makes it possible accounting team to automate the painstaking process of compiling all the required documentation to perform Hedge Accounting – allowing CFOs to cost-effectively provide more informative financial statements.

Improvement 5: Automate swap execution

Pain point: The process of adjusting the firm’s hedging position to the cash settlement of the underlying commercial exposure is one of the finance team’s most resource-intensive and error-prone tasks. It can require an enormous amount of ‘swapping’, particularly for companies that manage many commercial transactions in different currencies.

Improvement: Swap automation, a task that most TMS are unable to perform, is a key feature of Currency Management Automation software. Perfect traceability allows members of the finance team to automatically ‘draw on’ or ‘roll over’ existing forward positions while removing operational risks.

Read the second edition of our CFO Perspectives series, 5 asset management tactics CFOs should borrow from when managing FX risk.

What Does Real-time Connectivity Mean for Your Organization?

08-08-2022 | treasuryXL | Kyriba | LinkedIn |

Nowadays if you work in treasury, probably not a day goes by without you seeing a social post or article from your subscribed newsletters on the topic of real-time Bank API. It stands for the future of bank connectivity, and it will change the way data is exchanged between corporates and banks. Trent Ellis, Senior Solution Engineer at Kyriba, spends his time assisting clients to evaluate what works the best for them from a solution point of view, with both their current and future business needs in mind. In his discussions with clients and prospects, bank connectivity has always been a focus area and recently he noticed a growing interest in real-time Bank APIs.

 

By Trent Ellis, Senior Solution Engineer

Source

When it comes to real-time bank connectivity, the first thing I usually tell my clients is that it’s important to delineate between the different data flows such as inbound balance reporting, transaction details, confirmation reporting and outbound payment initiation. When an organization plans to make real-time bank connectivity a reality, the first thing they should do is to look at their data flows from daily operations. Identify and determine what data would benefit from a real-time update? Which items are critical for that real-time treasury decision making? Where are you going to maintain the balance and transaction data once it is received or payment data prior to it being transmitted to the bank?

Next, because many banks have grown their footprint by acquisition, bank accounts held in different regions (even regionally within a country) can be on different platforms with different technology. Therefore, within a single bank, API readiness can have a different status for different subsets of bank accounts based on branch and geographic location.

Now that the bank may have made an API connection available, how are you going to connect to it? Do you look at internal technical expertise and availability? Do you look to a third-party vendor? Consider a specialist that just does API connections or a TMS vendor that has other integrated modules and additional functionality beyond just the bank connection for statements and/or payments?

Real-time Bank Reporting, what does this really mean?

Banks are now offering bank balance API’s as well as transactional statement APIs, but sometimes not (yet) both. It’s more than likely not the same as what you would get from that same bank in the form of a BAI or MT940 standard bank statement as banks are still working on what data becomes available through the API. Bank balance reporting is important for real-time liquidity monitoring but will not always help your treasury or AP team confirm the status of a cleared payment, or the status of an important cash credit.

Yes, an API can deliver data in real-time but is the underlying platform that holds that data providing real-time data? Some banks are providing their “real-time” data on a predefined schedule throughout the day which means it is not what most would consider “real-time”. True real-time reporting requires process changes at the bank. Decreasing update time from day to hours or within the hour is an improvement that is easier to absorb without restructuring the process.

Real-time payments, what does this really mean?

Real-time payments are payments that are cleared and settled nearly instantaneously. Real-time payments are generally facilitated by domestic or regional payment infrastructures on a 24x7x365 basis including weekends and holiday.1

Many may not be aware that globally real-time payment infrastructures have been around for as long as 40+ years, and real-time payments can be enabled via FTP or API based on Bank / FI’s offerings and the connectivity option preferred by the corporate customer. Relatively, it has been a recent development in the US payment ecosystem. In November 2017, The Clearing House launched the first real-time payment infrastructure RTP® network in the US, built on the same Vocalink technology that powers the UK’s Faster Payment System. The RTP® network was built for financial institutions of all sizes and serves as a platform for innovation allowing financial institutions to deliver new products and services to their customers. Financial Institutions can integrate into the RTP® network directly, through Third-Party Service Providers (TPSPs), Bankers’ Banks and Corporate Credit Unions.2 The US Federal Reserve will be launching its real-time payment infrastructure FedNowSM in the 2023 – 2024 timeframe.

Globally real-time payments are growing at a double-digit growth rate across all major markets. Adoption of real-time payments will continue to be use case specific, especially for use cases that are underserved by existing payment infrastructures. In the long-term, we should expect real-time payments to be an important part of corporate’s payments mix alongside other traditional payment systems. Like other real-time payment infrastructures globally, the RTP® network has been increasing its transaction limits, which currently stands at $1million. This makes it more relevant for B2B / Corporate payment use cases – a very good example from our client HUNT Companies being the intracompany transfers for efficient deployment of working capital. However, this also means that if you need to make payments with value greater than $1million, you would need an alternative type or method for the time being. You cannot rely on the RTP® network as your only means to make payments and will still require connections for other payment types such as Wire, ACH and international formats.

Recommendations to clients

The world is certainly migrating towards real-time bank connectivity, but organizations will ultimately require various connectivity strategies to fit different geographical and banking technology. In 2022, most real-time Bank APIs are an incremental addition to existing connection methods and formats for both statements and payments. Currently, Bank APIs are not a replacement for other options, which are still required to get a complete picture of prior day statement activity and/or ability to send all required payments. Therefore, my recommendations to my clients always remain the same:

  • Identify and evaluate your data flows.
  • Where does real-time data make sense?
  • Talk to your banking partners and understand their offerings in detail.
  • Ask the question: Do your internal requirements align with the bank’s offerings?
  • Where are you going to house the data that is received/transmitted via the real-time Bank connectivity?
  • Talk to vendors that have teams of people that do this every day and evaluate their perspectives and subject matter expertise.

Find out more details on Bank APIs from the Kyriba Developer Portal, and watch any time an on-demand webinar on everything you need to know about APIs: Bank Connectivity and Beyond.

1 Real-Time Payments: Everything You Need to Know. Paymentsjournal.com. 2021
2 The RTP® Network: For All Financial Institutions. The Clearing House.

Click here to view all blogs by Kyriba

Cash & Treasury Management: Join The World’s Leading Experts in Copenhagen

04-08-2022 | cashandtreasury.dk | treasuryXL | LinkedIn

 

Featuring Chairman of the event, Pieter de Kiewit – Owner of Treasurer Search

 

Be a part of the exclusive Cash & Treasury Management Conference on the 1st of September 2022, which will be held in the extraordinary luxury settings at Hotel d’Angleterre in Copenhagen.

Get updated, expand your network, and get inspiration for optimizing your work within the Cash & Treasury Management community.

 

 

The international program consists of selected and experienced speakers that have proven success within a certain area of Cash & Treasury as e.g., ESG, digitalization and Cash Management. The conference brings together a selected group of high-level senior treasurers from global organizations. Learn from your international peers and join the exclusive network. The event ensures you a full day of new knowledge and inspiration made for high level Treasurers. You get in-depth with the latest trends, valuable content from recognized speakers and extensive networking opportunities.

Among others, these topics have been selected for this year’s conference:

  • Sustainability financing – experiences one year down the road
  • Proprietary data driven cash flow forecasting model
  • How we integrated Nets Group Treasury in to Nexi Group treasury
  • Experiences from a massive hacking attack
  • A career within Novo Nordisk treasury
  • Macroeconomic trends and predictions
REGISTER VIA TREASURYXL

 

As part of TreasuryXL’s network we offer treasurers 25 % discount.

Sign up now and join us 1 September – Remember to use the code when signing up: TreasuryXL25

 

 

Read the program and learn more about participation and sponsorship opportunities: cashandtreasury.dk

 

 

 

 

CFO Perspectives: 5 asset management tactics CFOs should borrow when managing FX risk

01-08-2022 | treasuryXL | Kantox | LinkedIn |

When managing FX risk, CFOs could learn a lot from the world of asset management, where a revolution —led by indexing— has led to huge gains for investors. But how can you apply this to your business’s FX risk strategy? Watch below the video, or read the article!

Credits: Kantox
Source

In the second edition of CFO Perspectives, we’ll draw from our work with CFOs to explore the parallels between asset management and FX risk. We’ll break down the processes and tools used in asset management which can be applied to your currency management strategy, with some spectacular results.

Over the last couple of decades, the world of asset management —an industry with $100 trillion under management— has been turned upside down by a quite unexpected revolution: indexing. Instead of relying on managers’ capacity to time the markets, these firms have automated the selection of assets by quietly replicating stock indexes.

Can CFOs lead a comparable revolution in currency management?

The answer is: yes, they can! Let us see why and how they can accomplish that feat.

Having embraced indexing early on, two leading firms have assets under management north of $15 trillion. What’s more, they have achieved such a spectacular result with fees that are only a fraction of the fees charged by those who embrace speculation. They have saved, and they are still saving, hundreds of billions in costs to investors.

Similar changes may be afoot in the business world. The term ‘exposure under management’, now used by CFOs and treasurers, comes from the expression ‘assets under management’. More importantly, CFOs are eschewing speculation — just like their cousins in asset management.

When managing currency risk in the one-trillion-a-day forward currency market, CFOs are using more and more digitised, automated solutions.

A random walk for risk managers

Once in a while, a lack of currency hedging or even speculating on an FX market move can yield a positive outcome for CFOs. But luck will run out at some point. Sooner or later, blindfolded by overconfidence, ‘speculative’ risk managers flounder in their vain attempt to time currency markets — with disastrous consequences for themselves and their companies.

Like stock prices and the price of other financial assets, exchange rates are not predictable. They follow ‘a random walk’ in which the forecast is set equal to today’s exchange rate (the spot rate). Accordingly, investors —and risk managers— should embrace markets rather than trying to beat them.

This is the thrust of the analogy between the asset management revolution and the coming revolution in FX risk management, an event that will ultimately enhance the strategic role of CFOs.

5 asset management tactics CFOs should borrow when managing FX risk

Let us go beyond the surface and take a closer look at the key tools and processes used by the most successful companies in asset management. These processes provide a useful template for understanding how CFOs will use Currency Management Automation solutions to manage FX.

We can single out at least five main lines of action:

  1. Avoid timing the market. Nine out of ten of the so-called geniuses of the investment world have been ‘destroyed’, in terms of comparative performance, by the more modest index funds. Adding insult to injury, the latter have charged only a fraction of the fees. The no-speculation mantra has proved immensely successful in asset management. If one accepts the view that currency markets also follow a ‘random walk’, then there is no reason to expect a different outcome when it comes to FX risk management.
  2. Achieve operational brilliance. Indexed asset managers know that their success relies on engineering products that achieve operational brilliance by taking the risk of human error out of the equation. Just as indexing is measured by the tracking error between a fund’s rate of return and that of its benchmark, Currency Management Automation is at its core an engineering product that uses Application Programming Interfaces to achieve great precision in currency hedging while allowing managers to seamlessly run the entire FX workflow.
  3. Implement scalable solutions. Successful asset managers use platforms that provide scalability, which makes it possible to quickly and cheaply enter new markets such as bonds, commodities and others, almost anywhere and in many currencies. The same idea applies to FX automation, as CFOs are set to implement scalable, data-driven pricing and hedging solutions to enter new markets, enabling their companies to buy and sell in more currencies — with FX risk systematically under control.
  4. Innovate with a purpose. Indexing is one of the few truly beneficial inventions, a technology that has saved investors hundreds of billions of dollars. Similarly, the purpose of automated FX risk management is to allow firms to confidently ’embrace currencies’, reducing costs to customers and ultimately enhancing the value of the business. When it comes to innovation, purpose matters (see: “CFO Perspectives: 3 ways CFOs can use currencies to boost their business’ value”).
  5. Keep a foot in more than one camp. The world’s largest asset manager keeps a foot in both camps: active asset management and index funds. An entire platform provides a menu from which clients can select whatever financial slice they might fancy. Likewise, CFOs have at their disposal an entire ‘family’ of automated hedging programs and combinations of programs, including balance sheet hedging and a variety of cash-flow hedging programs that respond to their firms’ goals and pricing parameters.

Read the first edition of our CFO Perspectives series, 3 ways CFOs can use currencies to boost their business’s value here.

The Working Capital Forum Europe | Amsterdam 2022

20-07-2022 | treasuryXL | The Working Capital Forum | LinkedIn |

 

MANAGING WORKING CAPITAL IN CHALLENGING TIMES

 

 

On 1st December 2022, Working Capital Forum Europe brings together leaders in treasury, procurement, and payments to share ideas and techniques for better working capital management across supply chains.

That’s never been so important as in these times of rising interest rates, inflation, and supply chain shocks, when managing working capital is everyone’s concern.

From supply chain finance to accurate cash forecasting, solutions for every component of working capital management will be discussed on stage, demonstrated in our information area, and examined in our workshops at the world’s largest specialist working capital and supply chain finance event.

We’re delighted to return to Amsterdam for this one-day live event, with main stage keynote sessions, panel debates, and breakout workshops and demos.

If you’re interested in optimising working capital in your organisation, you need to join us in Amsterdam for the most productive day you’ve had in years.

Among the topics we will be covering are:

  • Cash forecasting and cash visibility
  • Payables finance
  • Receivables finance
  • Optimising receivables – get paid faster
  • Inventory management and inventory finance
  • Supply chain finance
  • ‘Deep tier’ supply chain finance
  • Funding options for trade and supply chain finance
  • Using working capital tools for ESG objectives
  • Credit insurance
  • Disclosure rules on supplier finance
  • Ratings agencies and their view of working capital solution

USE YOUR COUPON CODE VIA TREASURYXL

  • Banks, fintechs, and other solution providers can get 25% off the cost of a ticket using this TreasuryXL code: TXL2225
  • Corporate Treasurers can apply for a free ticket using this Treasury XL code: TXL22CG

TO REGISTER AND FIND OUT MORE VISIT:  WORKING CAPITAL FORUM EUROPE 

Visit the Working Capital Forum: https://www.workingcapitalforum.com/

Join our events here: https://www.workingcapitalforum.com/events

Enter the Working Capital and Supply Chain Finance 2022 Awards here: https://www.workingcapitalforum.com/awards.html