How can Xe help your manufacturing business with its international payments and FX requirements?

08-04-2020 | treasuryXL | XE |

Xe can help businesses in the manufacturing sector to make quick international payments and prepare for currency market volatility.

How can exchange rate movements affect your business? If your business operates in multiple countries, imports or exports goods or services abroad, or deals with foreign currencies in any capacity, exchange rate movements can have a significant impact on your business’s operations and bottom line.

Let’s consider how exchange rate movements could impact manufacturers who regularly purchase products and parts. Even if the costs of these parts and products remain steady, currency values will not. The currency markets are constantly in flux, and volatility in the markets could increase the costs of your imports, or even reduce your profitability.

In addition to preparing for potential market volatility, an experienced foreign exchange and international payments provider can also provide your business with a quick, reliable and cost-effective way to make your business payments, and help you to come up with a strategy to minimize your risk exposures and effectively plan for future FX outcomes.

What can a manufacturing business do to improve its FX outcomes?

The first step is finding the right international payments and foreign exchange provider. Just as each business is different, each provider is different, and the right provider for your business will have the right tools and services to help your business craft the strategy that suits your business’s needs.

At Xe, we understand that each business has its own FX requirements. Today, we work with over 13,000 businesses of all sizes across all industry sectors and offer each one the products, services, and guidance that it needs for its operations.

We can help your manufacturing business:

  • Maintain steady importing costs;

  • Save time on your international payments with our quick and easy transactions;

  • Save money on your international payments with better rates and fees than what your bank would offer.

Learn More

What Xe can do for your manufacturing business

In addition to offering our experience and expertise to help your business craft its own foreign exchange strategy, we also offer up an array of products and services that include:

  • Spot transfers, so you can purchase currency and send your international payments quickly, easily, and “on the spot”.

  • Market orders, so you can set a target exchange rate for an automatic transfer once it’s been reached, so you can secure the rates you want for your payments that aren’t time-sensitive.

  • Forward contracts, so you can lock in today’s exchange rate and schedule a future transfer on that date and ensure that your payment will send on time and you can avoid potential market volatility.

  • Risk management, so our team of currency experts can create a customized risk management strategy for your business’s foreign exchange needs, and you can devote your time to your business.

Get Started

 

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multi billion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

How to get a quote for fast and secure money transfers for your business

01-04-2021 | treasuryXL | XE |

By signing up for a free Xe Business account, you can quickly and easily get quotes for fast money transfers for your business’s international payments.

Getting a quote is the first step to making a business international payment. And while it may sound simple enough, if you don’t know where to begin or who can help you get a quote, it can quickly grow overwhelming.

We understand that you might not have the time to learn all about the process before getting a quote. We’re here to make it quicker and easier for you, so you don’t have to take any time away from your business.

There are a few questions you should ask yourself first:

  • Do you know what type of payment you’ll need to make?
  • Do you know where to go to get a good exchange rate for your transfer (or even that you can shop around for rates)?
  • Are you working with a knowledgeable foreign exchange provider that can help you find the best rate and choose the right payment solutions for your business?

At Xe, we can help you with all of the above. Here’s how you can get a quote for your business’s next international payment.

Learn More

How to sign up for an Xe business account

Before you can get a quote, we’ll need you to sign up for an account so we can understand what your business is looking for. Fortunately, an account is free and signing up will take just a few minutes. We’ll ask you for some information about your business. This will vary, but these details typically include:

  • Registered business name
  • Country of registration
  • Registration number
  • Type of business
  • Nature of business

Once you’ve filled that in, we’ll then want to know some information about you. In order to create an Xe Business account, you will need to be a director. We’ll ask for:

  • Your name
  • Your title
  • Your mobile phone number
  • Your date of birth
  • Your address
  • The email address and password you’ll use to sign in.

One last step to go—we’ll prompt you to provide:

  • Where you’ll be sending money from
  • The currencies you’re expecting to send
  • How many transfers you’re planning to send.

Once that’s been submitted, one of our team members will get in touch with you, typically within the day. We’ll confirm the details you provided and, once that’s completed, you’ll be all set to start making payments.

Get Started


How to get a quote for your business

Good news! Once you’ve signed up, getting a quote is quick and easy.

  1. Sign in to your account.
  2. Select the currencies you’d like to exchange.
  3. Enter the amount you plan to send.

That’s all! The send rate and cost for your transfer will pop up automatically. If you’re happy with the quote and want to proceed with your payment, hit “New Transfer” to continue on to making your transaction.

Get Quote

We hope this has helped break the process down for you. If you have any questions or need additional assistance with your payments, you can also contact our team by phone or by email.

 

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multi billion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

Bankensurvey: (klein)banken willen samenwerken op één platform (Dutch Item)

29-03-2021 | treasuryXL | Enigma Consulting |

Enigma Consulting heeft in 2020 rondom het thema outsourcing een survey afgenomen onder vijftien in Nederland gevestigde klein- en middelgrote banken. Het betreft wholesale- en retailbanken, private banken en spaarbanken. De resultaten staan gepubliceerd in het rapport outsourcing.



Transitie vraagt om investeringen in infrastructuur

Door ontwikkelingen, zoals wet- en regelgeving, Instant Payments, Open Banking, en de toenemende concurrentie van fintech’s, bigtech’s en challengerbanken, maakt de bankensector een enorme transformatie door. Dit vereist een voortdurende investering in de bancaire infrastructuur.

Het bedrijfsmodel van banken staat zwaar onder druk. Zeker de klein en middelgrote banken zijn op zoek naar kostenverlaging en consolidatie. Door samen te werken kunnen banken een kostenbesparingen realiseren en de continue verandering het hoofd bieden. De resultaten van de survey laten zien dat banken outsourcing zeker als oplossingsrichting onderkennen:

Outsourcing leidt tot de mogelijkheid om samen te werken en het creëren van partnerships. Niet alleen met solution providers, maar ook met gelijkgestemde banken. Met als doel samen te werken aan een standaard infrastructuur waar meerdere partijen gebruik van kunnen maken. De aangesloten partijen op het platform dragen gezamenlijk bij aan de markt gedreven ontwikkelingen.

In een wereld waarin klanten steeds meer verwachten van de digitale services van hun bank, is het noodzakelijk voor kleine en middelgrote banken om mee te gaan met de enorme transformatie die de bankensector ondergaat. Klanten verwachten namelijk hetzelfde niveau van digitalisering als dat zij in het dagelijks leven ervaren. Het gemak en de snelheid waarmee eten online besteld kan worden, moet ook in de bancaire dienstverlening als standaard gelden.

Klantervaring centraal

Outsourcing kan deze klantverwachting vervullen. Door ontzorging via outsourcing kan de focus gericht worden op specifieke klantdiensten of integratie met diensten van derde partijen. De klantervaring komt op deze manier centraal te staan. Een mindset die voor kleine banken misschien wel noodzakelijk is om te overleven.

Ondanks de voordelen van outsourcing worden ook een aantal nadelen genoemd. Bijna alle banken geven aan dat ze bang zijn om controle te verliezen door de grote afhankelijkheid die ontstaat door outsourcing. Als bank ben je aangewezen op de roadmap van de solution provider. Daar staat tegenover dat door gezamenlijk op te trekken in partnership met een provider er juist grotere invloed kan worden uitgeoefend.

Banken eisen vaak specifieke aanpassingen in hun core banking en betalingsinfrastructuur. Als gevolg hiervan ontstaat er een wildgroei van aanpassingen op ‘standaard’ core-banking producten. Zo lang banken dit blijven doen, is er geen ruimte voor gezamenlijke productontwikkeling en zal onderhoud intensief zijn en hoge kosten met zich meebrengen. Juist een gezamenlijke ontwikkeling kan er voor zorgen dat er één standaard oplossing komt voor de Nederlandse markt.

Minder flexibel

Ook geven banken aan minder flexibel te zijn wanneer ze hun core-banking outsourcen. Bij veranderingen in de organisatiestructuur of ontwikkelingen in de bankensector kan er niet meer geschakeld worden naar andere of betere software. Daartegenover staat dat een bank ook nu voor core-banking een lange termijn visie hanteert. Een systeem wordt geselecteerd om een decennium, en waarschijnlijk langer, mee te gaan. Daarom is het van groot belang om een toekomst vaste (modulaire) oplossing te kiezen. Sterker nog: banken kunnen hier beter kiezen voor een aanbieder die zich opstelt als partner, die proactief de ontwikkelingen volgt in plaats van louter een leverancier te kiezen.

”Samenwerking, outsourcing en partnering op een modulair core-banking platform lijkt de toekomst voor banken”

Veel banken ervaren dezelfde veranderingen in de markt. Iedere bank analyseert de impact van deze veranderingen individueel. Ook banken met verschillende core-banking systemen kunnen gezamenlijk deze analyse fase doorlopen. Op deze manier komen banken meer met elkaar in contact. Het gemeenschappelijk analyseren van de impact van een verandering is het spreekwoordelijke ‘low hanging fruit’, als eerste stap richting samenwerking binnen het core-banking domein. Een volgende stap is het collectief ontwikkelen en gebruiken van generieke core-banking producten, maar de survey wijst ook uit dat banken willen samenwerken bij CCD en AML, reconciliatie en de Sparen administratie.

Het vervangen van een standaard core banking systeem vergt een serieuze investering en commitment. Een gezamenlijk core-banking landschap moet zodanig worden ingericht dat modulaire producten kunnen worden aangesloten en banken makkelijk kunnen instappen met een deel van hun infrastructuur.

Samenvattend

Samenwerking, outsourcing en partnering op een modulair core-banking platform lijkt de toekomst voor banken. Dit wordt door de huidige stand van de technologie meer dan mogelijk gemaakt. Dit betekent wel een paradigma verandering bij zowel banken als leveranciers. Om gezamenlijk tot een oplossing te komen moeten alle partijen zich er bewust van zijn dat langdurig commitment en een lange termijn visie vereist zijn.

Voor een totaaloverzicht van de uitkomsten, download de bankensurvey hier.

How can Exchange rate movements affect your business?

11-03-2021 | treasuryXL | XE |

If your business works with international currencies, your business could be impacted by exchange rate movements.

Does your business:

  • Make income from overseas operations?
  • Import or export goods and services from abroad?
  • Pay overseas invoices?
  • Or interact with foreign currencies in any way?

If so, your business can be impacted by exchange rate movements. Whether you’re a sole proprietor or a large corporation, in manufacturing or healthcare, you will face some level of foreign exchange risk when making international payments.

What is foreign exchange risk?

It’s exactly what it sounds like: it’s the possibility that a business’s financial position or performance could be negatively impacted by fluctuations in exchange rates in the foreign currency markets. As the saying goes, the markets never sleep. Exchange rates are prone to fluctuations at any given moment, and while experts can forecast where they think currency values might go, you can’t predict where the rates could go—or what it could mean for your business. Let’s take a look at a few examples.

How does a falling domestic exchange rate affect your business?

A falling domestic exchange rate can:

  • Increase costs for importers and potentially reduce their profitability.
  • Make domestically produced products more competitive against imported products.
  • Increase the cost of capital expenditure (for example, if it includes the importation of capital equipment).
  • Increase the cost of servicing foreign currency debt.
  • Improve exporter competitiveness.
  • Make a business a more attractive investment proposition for foreign investors.
  • Increase the costs of investing in overseas operations.

How does a rising domestic exchange rate impact your business?

On the other hand, a rising domestic exchange rate can:

  • Make exports less competitive, reducing exporter profitability.
  • Decrease the value of investment in foreign subsidiaries and monetary assets (when translating the value of such assets into the domestic currency).
  • Reduce foreign currency income from investments.
  • Reduce the cost of foreign raw materials, giving importers a competitive advantage.
  • Reduce the value of foreign currency liabilities and hence the cost of servicing these liabilities.
  • Reduce the cost of capital expenditure (for example if it includes the importation of capital equipment).
  • Make a business less attractive to foreign investors.

Did you notice anything? No matter which direction the exchange rate is moving, it could have the potential to impact your business—and your bottom line.

How can you protect your business from market volatility?

No one can predict how the markets will move, but a knowledgeable FX provider can give your business the guidance and solutions to help you to make informed decisions to minimize the impact of market motion.

Are you curious to know more about XE?

Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

Interbank Payments Transactions (Dutch Item)

10-03-2021 | treasuryXL | Enigma Consulting |

The playing field of interbank settlement and settlement of international payments is being overhauled. In Europe, Target2, T2S and TIPS are being consolidated in a new platform. The international payment and reporting messages between banks will be switched from MT to ISO20022. Now SWIFT comes with a new Transaction Management Platform for international payments and securities transactions. That means a lot of work for institutions using the Target systems and SWIFT. Enigma Consulting can help you analyze and implement the changes.

Target Consolidatie

De huidige Target2, T2S en TIPS-systemen van de Europese centrale banken worden ondergebracht in een nieuw platform voor Europees interbancair betalingsverkeer. Naast deze drie systemen maken onder meer een centrale opzet van het liquiditeitsbeheer (CLM), centraal beheer van gemeenschappelijke gegevens en een geharmoniseerde interface met de buitenwereld (ESMIG) deel uit van het nieuwe platform. En het berichtenverkeer van en naar Target2 migreert van MT naar ISO20022. Al deze veranderingen krijgen hun beslag in een big bang implementatie per 21 november 2022.

Neemt uw instelling direct of indirect deel aan één van de Target-systemen? Dan moet u vóór die tijd uw processen en IT-systemen aanpassen aan de nieuwe werkwijze, berichtenstandaard en interface. Daarbij moet u voldoen aan de verschillende mijlpalen die de Europese Centrale Bank heeft gedefinieerd.

Migratie naar ISO20022

Het interbancaire berichtenverkeer in het kader van internationale betalingen via SWIFT migreert van de MT naar de ISO20022 (MX) standaard. Het gaat hierbij met name om de betaalberichten uit de MT1- en MT2-serie en de rapportageberichten uit de MT9-serie. Het gebruik van de MX-berichten en de vertaalregels tussen MT en MX worden in goede banen geleid door de Cross Border Payments and Reporting Plus Group (CBPR+) van de banken en SWIFT. De migratie zelf wordt uitgesmeerd over de periode november 2022 tot en met november 2025.

Initieert of verwerkt uw instelling internationale betalingen via SWIFT? Of verstuurt of ontvangt uw instelling rekening- of transactierapportages via SWIFT? Dan moeten uw IT-systemen aan de ISO20022 formaten en regels worden aangepast. En omdat de technische aansluiting op het SWIFT-netwerk met de overstap op MX-berichten ook wijzigt, moet die ook worden aangepast.

Hoe kunnen wij u helpen?

Onze interbancair betalingsverkeer experts kunnen u helpen bij het analyseren van de impact en begeleiden van de implementatie van de wijzigingen in het kader van de Target-consolidatie en de migratie van MT naar ISO20022. U kunt daarbij denken aan het volgende:

Target-consolidatie
  • Adviseren over nieuwe opzet van rekeningen bij de Europese Centrale Bank.
  • Analyseren en inrichten van de processen in het kader van betalingen en liquiditeitsbeheer.
  • Analyseren van de impact van de nieuwe ISO20022 berichten voor uw instelling én voor uw klanten.
  • Workshops over het verandergebied, de processen en de berichtenstandaard.
Migratie naar ISO20022
  • Analyseren van de impact van de nieuwe ISO20022 berichten voor uw instelling én voor uw klanten.
  • Adviseren over en analyseren van de impact van het nieuwe Transaction Management Platform van SWIFT.
  • Workshops over het verandergebied, de processen en de berichtenstandaard.

Geïnteresseerd of wilt u meer weten? Neem dan contact op met één van onze consultants.

Blank Sheet Treasury – a Guideline answering the “How”, “When” and “Why”

| 08-03-2021 | Jesper Nielsen-Terp | treasuryXL

In uncertain times like the financial crisis in 2009 and the Covid-19 pandemic in 2020, the old phrase “Cash is King” always pops up. By the end of day the Treasurer and the Treasury Department once again sit in the middle of the fire. Although it is the Board of Directors who is overall responsible for the financial strategic target settings, which is influenced by the CEO or the CFO, tasks and responsibilities flow from the top management and end up at the Treasurer’s desk.

To be prepared for the fire place, I believe that it is crucial for the Treasurer or the Finance Department employees carrying out treasury activities, that a clear strategy is implemented and outlined. Not only a strategy for how the policies and guidelines are carried out, but a strong mandate from Top management and maybe all the way from the Board of Directors. A mandate carved in stone, so no one can be in doubt when something hits the fan.

“Do not ask what the company can do for you, but ask…”

There are a couple of questions that all back office functions need to ask themselves on a regular basis. The answer to the questions should dictate the activities that are undertaken on any given day. First, they should ask, “Is this activity going to increase the company’s revenue?”.  If the answer is no, they should move on to question number two, “Is this activity going to reduce the company’s cost base?”. Once again, if the answer is no, then they should move on to question number three, “Will this activity delight the customer?”.  If the answers to all three of these questions are no, then we need to examine the activity to understand why we are conducting it.

The Blank Sheet Treasury

In order to understand why the recommendations that follow are applicable, we must decide what it is that we as a Treasury Department are trying to accomplish and why.  There are certain practices in Treasury across the world that should drive our behavior. In examining these  practices, one potential structure emerges; the Blank Sheet Treasury. This way we are starting with our objectives and future state in mind instead of our current state.

In my opinion, the future state should equal the Treasurer to be prepared and know how to handle future potential crises, whether it is a business related financial crisis or a worldwide pandemic.

Coming back to the phrase “Cash is King”, when in the middle of a crisis, everything else than access to cash or cash visibility should be a next day issue for the Treasurer. Stating this should give an idea why I believe the Blank Sheet Treasury always should start within the area of Cash/Liquidity Management, which of course can come in many different flavours.

The initial process

Coming back to the statements about having focus on future state and the mandates to get there, the initial process visualized below is a tool that the Treasurer needs in his/her toolbox. Maybe not the most innovative tool, but most likely one of the most important tools, if not the most important, when shaping, re-shaping and driving treasury.

The process map works like a Lego building instruction, where there actually is a possibility to skip or change the order, but when doing it, the result will not be what we were aiming for, or even worse than what our surroundings (stakeholders) thought we were aiming for. So if the order somehow is changed or some parts are skipped, it will be similar to an “un-finished” Lego construction. It will in some cases be functional, but there will always be some spare and important “bricks” left on the table. In the Lego context some left bricks might not make a difference or at least not a huge difference, but in a corporate context the repairment will have critical impact on time, costs and lost confidence from stakeholders.

The foundation for everything else

Before moving to the discussion on the Leadership mandate and afterwards on daily-life guidelines for the Treasury Department, let’s first make sure that a part of the objectives and future state is the idea that everything is to be accomplished (now or in a few years). Not only will it be a guidance for the “how, when and why”, but also because top management, that give access to the budget, want visibility and take decisions based on valid information.

As the majority of Treasurers and their departments have Cash/Liquidity Management as one of their key deliveries and as the Cash/Liquidity Management highly impacts other workflows in the Treasury Department, it is somehow the foundation for everything else and therefore a good place to start.

This figure is of course not a golden rulebook, and for some Treasury Departments priorities can come in another order. But when talking to Treasurers about their priorities and building or re-shaping their setup, the figure outlines to a great extend how they see the structures and how they want to manage the process of reaching the end line.

Best Practise and Future Workflows

Each of the circles has some underlying characteristics and is decomposed into a number of workflows. Here, the objectives for the future state and best practise will come into play.

In this recommendation, Cash Management is identified as the foundation for other workflows. Next to that, when looking into job descriptions and talking to Treasurers about their key objectives,  FX Risk Management is identified to be high on the agenda. Therefore, the following graphs will assist the visualizing and guidance of Cash and FX Risk Management.

 

The Best Practise box has to be filled out by the company (the Treasury Department), based on their needs and very much linked to the Objective/Future State. The question asked here is; ‘’Does the Company actually know what is the best practise in each of the work flows or could there actually be multiple solutions for the Best Practise?’’

The answer for both questions will for the majority of companies be that the Treasury Department has some thoughts and ideas for what they see as Best Practise for their setup, but at the same time they will recognize that a solution for the future state and the Best Practise for this, can come in different varieties – it is not a One Size Fits All. When agreed on the Best Practise for the future state, it will then be time to start visualizing the future workflows, which will give some thoughts and ideas for what actually has to be build, changed and implemented.

 

One of the pitfalls to avoid here is to not look too much into what worked in the past and in addition avoid looking at single workflows (in this example Cash and FX Risk Management).
As a normal part of being a human being, there can be a significant probability to start applying what worked well in the past, because the Treasurer might have some experience or preferences from similar projects. Thus, there will be a tendency of implementing same workflows and systems used in the past, even though they do not fit into the entire puzzle.

 


The entire puzzle

Likewise in our own life, the CFO wants to see the full picture and understand the full picture, before opening up the purse and increasing capital expenditure. With this in mind and the objective of getting a budget, do not only look into the short term and easy reachable targets, but think big and lay out the entire puzzle. Still continue to grab the low hanging fruits though, because they are to be grabbed in order to keep momentum.

What is the entire puzzle and how can it be shown in a simple, but informative structure, so no one will be in doubt of the individual workflows on the journey of reaching the objectives and creating a best-in-class treasury setup.

To assist on laying out the entire puzzle, all workflows will be identified and structured by its “Value” and “Importance”. Therefore, the below chart can be the guidance for where to start as well as be used in the dialogue with the CFO and other stakeholders. Once again it is important to state that the chart is not a golden rule book, but an inspiration for how to make progress on the journey.

 

The red box will obviously be the initial most wins and the focus areas. Even though most wins have been identified, the entire puzzle is still unfinished, because it is actually laying like a puzzle.

The box has been unpacked and the puzzle pieces has been sorted.  The next step for the Treasury Department will be to make the final move and bring their game plan. A game plan divided into a number of streams showing the how, when and why.

*Policies/Procedures are in the initial phase not a part of the Blank Sheet Treasury, but is stated above in each of the streams as it is something which need to be in place when start implementing.

 

Using streams and a given timeline for each of the streams as well as combining the different areas and the workflow process identified, the Treasurer now has made a construction manual for how to implement a best practise setup for the future state.

When utilizing some or maybe all of the recommendations and figures in this article, it will be possible for the Treasury Department to start taking the dialogue with the CFO and potential other stakeholders, who need to be involved in the process. Because when being able to identify the how, when and why, and showing the entire process and the needs, the CFO can see the entire picture. A picture which can be used when moving into the next section, where mandates will be given to the Treasurer and a budget needs to be allocated.

Additional considerations

When using a Blank Sheet Treasury setup, the probability of succeeding is higher if no planning has been made. Moreover, the Treasurer needs to consider whether or not the right resources are in place when moving into the building, crafting or re-shaping the phases. When talking about resources, it will both be human resources and resources in terms of systems.

In terms of human resources it can be internal resources, such as treasury and/or IT people, or external resources, such as treasury consultants. Speaking about consultants, it might be worth considering. Even though it comes with a cost, advantages are gained in times and knowledge.

On the system side, the Treasurer will have to decide whether or not he/she can bring his/her plan to live with the existing system landscape, and if not, the process will have to be added with a suggestion to make changes to the current system landscape.

Thank you for reading and looking forward to your thoughts.

 

 

Jesper Nielsen-Terp

Treasury & Risk Management Expert

 

 

What can we expect from the Pound in 2021?

04-03-2021 | treasuryXL | XE |

The Pound has just recently hit its highest rate against the USD since April 2018. In our forecast, we’ll discuss what we anticipate for the Pound in the coming months of 2021.

The United Kingdom has outstripped other major world economies when it comes to the vaccination rollout and the Bank of England seems to have delayed the potential for negative interest rates, boosting the market’s demand to buy Sterling. However, there is more to consider than just these two obvious factors.

The Pound, at a glance

What’s impacting the Pound right now?

  • The Bank of England stated it expects the UK Economy to “recover rapidly” once out of lockdown.

  • UK consumers have built up around a whopping £154B in savings—signifying pent-up demand when the economy is back open for business.

  • COVID-19 cases are dropping, and vaccinations are increasing.

  • Governor Bailey appears to be ready to buy bonds in stimulus.

  • The furlough scheme does appear to be capping unemployment rates.

These points allude to the potential for a U-shape recovery out of the COVID-19 pandemic recession for the UK.

Compare to the sharp fall experienced at the outbreak of the virus, where we saw the UK economy drop a whopping 20%, which was then followed by a period of flat or marginal changes and ultimately a sharp increase in economic growth.

The Pound, in review

Looking back in recent history, the Sterling Index shows the incredibly negative impact the EU referendum result had on the value of the Pound against a basket of currencies since 2016.

GBP to USD, 2011-2021

Line chart illustrating the Pound sterling to US dollar exchange rate between February 2011 and February 2021.

GBP to Euro, 2011-2021

Line chart illustrating the exchange rate from Pound sterling to Euro between February 2011 and February 2021.

The currency has not recovered to pre-referendum levels against its major counterparts. The sheer uncertainty and political instability in the United Kingdom has been the constant “grey cloud” hanging over the Pound. Accordingly, the number of short positions on the Pound and lack of desire to hold Sterling in a portfolio of currencies has left it out in the cold.

In March and April of 2020 this lack of desire to hold Sterling was amplified when the world’s risk propensity changed and investors and traders alike sold out of anything considered risky—be it the Pound, stocks or even gold—and into the traditional tried and tested safe haven of the US dollar. Sterling traded at its lowest levels since 1985 against the dollar and worst level against the euro since the financial crisis in 2008.

Asset allocation of portfolios added to this sale of GBP as investors sold traditional stocks listed on the London Stock Exchange and bought the tech stocks listed in the US during the initial phases of the pandemic.

However, markets again proved that they can get used to, or price in anything over time, and with lockdowns being eased the Pound stabilised and recovered some of the ground it had lost during the panic buying of US dollars.

The next major event risk was the Brexit deadline of the 31st December 2020, which Prime Minister Boris Johnson promised to deliver and refused to extend. This hampered any upward movement for the Pound and still hamstrings the currency today.

We did however see a Brexit deal agreed and a level of certainty arrive for the UK economy in the short term. Subsequently Sterling managed to make some gains against the euro and US dollar.

So, what has 2021 been like so far and what could happen next?

The markets want the answers to these major questions:

  1. Will the economy open sooner due to the vaccination rollout out, and

  2. Will this be before other global economies?

  3. How long will it take before consumers start spending those savings stored up during 2020 to get the wheels of the economy turning again?

  4. What will be required from the Monetary Policy Committee in terms of stimulus?

With new multi-year highs for GBP against the US dollar during the second week of February, it would seem markets believe, for now at least, that the UK can get going again and ahead of other economies. If the economy does start moving forward, will it be a “rapid recovery” like the Bank of England said it could be?

This has therefore pushed back the prospect of the Bank of England cutting interest rates to negative from May (some forecast) to August.

Things to watch out for and monitor in the near future:

  • Changes or delays to the vaccination roll out program

  • Effectiveness of the vaccinations to new variants/mutations of the COVID-19 virus

  • End to, or extension of, the UK national lockdown

  • The budget speech from Rishi Sunak on March the 3rd, specifically with regard to:

    • The health of the economy

    • Furlough scheme status/extension and its potential impact on unemployment

    • Tax rises to try and start paying for the pandemic relief

The Pound, in summary

The Pound has started stepping out of the shadows of the Brexit uncertainty and looks to be riding the wave of the vaccination rollout. However, there are a number of potential dangers to this, be it final Brexit deal negotiations on financial services or longer lockdowns due to new variants to the virus.

It could be a good opportunity for Sterling sellers currently and would seem prudent to take advantage of this for short-term committed exposures you face in foreign currency.

Are you curious to know more about XE?

Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

Corporates: Caveat IBOR and Build-Up Your IBOR Knowledge!

01-03-2021 | treasuryXL | Enigma Consulting |

Last year November we published the article ‘Corporates: Caveat IBOR!’ regarding the IBOR phase out and the impact on corporates. Let’s have a look why today’s corporate treasurer should be even more aware of IBOR interest rate benchmarks.

It is highly likely that your organisation will be affected by the IBOR transition. Most corporate organisations underestimate the impact, thinking that the ‘only’ thing that will change is a base rate and its calculation method. Before you join their ranks, take some time to reflect on the following:

The IBOR will cease to exist, starting on the 31st December 2021 and be replaced by Risk-Free Rates (RFRs) with a different basis for calculation:

  • These changes will impact financial (e.g. bond, (intercompany) loan, (multi-currency) credit facility) contracts as well as commercial contracts with an IBOR related ‘late payment clause’
  • This in turn will impact processes in the Treasury functions, with knock-on effects to supporting departments, Legal, IT systems, accounting, and tax reporting to name just a few
  • IBOR transition is progressing at a different pace across jurisdictions and financial products (e.g. loans, bonds, and derivatives), adding to the complexity of managing the transition
  • The Working Group on Sterling Risk-Free Reference Rates (RFRWG) published the following milestones regarding GBP LIBOR:
    • By end-Q1 2021, all legacy GBP LIBOR contracts expiring after end 2021 that can be actively converted need to be identified, and progress active conversion where viable through to completion by end-Q3 2021
    • Active steps to enable a shift of volumes from GBP LIBOR to SONIA in non-linear derivative markets: by end-Q2 2021, initiation of new GBP LIBOR linked non-linear derivatives that expire after the end of 2021 will be ceased; and, by end-Q3 2021, complete active conversion

The good news is that there is still time to assess the impact of the pending IBOR changes on your organisation and to act upon it if needs be. The sooner you have a plan for the potential consequences for your organisation, the sooner you will be able to mitigate these. This understanding will also give you more leverage in the coming discussions with your bank(s).

Moreover, the IBOR phase out may bring a golden opportunity for corporates to re-evaluate the current contract agreements and look for better deals. Consider this: during the IBOR migration contracts are in fact ‘renegotiated’ and banks will need to come up with a new offer. Will you take that offer as a corporate client? That all depends on your level of understanding and preparation.

What should you do to prepare?

As the deadline approaches, you will need to know your level of exposure and impact in order to prevent surprises. What will the impact of the IBOR transition be on your TMS and ERP systems, your credit facilities, bank loans, cash pooling, bonds, ISDA agreements and intercompany agreements? What impacts will these have on your processes and supporting systems? Which complexities will need to be managed?

 

 

Having this information at hand will enable you to be a proper sparring partner for your banks when they renegotiate contract terms.

Depending on the complexity of your contracts, the IBOR phase out could substantially affect your corporate organisation. Prevent unnecessary loss by preparing yourself, following this five-step approach:

 

  • IBOR phase out knowledge build-up

Corporates should start to build-up their knowledge regarding the IBOR phase-out and get up-to-speed with developments related to different kind of products and RFRs in order to be able to assess the IBOR phase-out impact. Each corporate organisation has a different situation and a variety of financial contracts. Complexity depends on the type of business. A larger organisation active across multiple regions in the world with more complex non-Euro instruments will be impacted higher than a smaller organisation that only is active locally within the Eurozone. Thorough knowledge about IBOR is a key starting point to assess the impact on your organisation and to be able to assess, plan and implement the migration to alternative reference rates.

  • Assess impact

The second step you should take is to analyse the IBOR related contracts in use throughout your organisation. Determine which contracts have an IBOR related component and the size of the exposure. Once you have assessed the complexity of your IBOR related contracts, analyse the impact on related areas (ranging from Tax and Legal to IT systems, and procedures, reporting, accounting (e.g. hedge-accounting), and the like).

  • Become a prepared discussion partner for your bank(s)

The third step is to be prepared for a call with your bank to discuss an RFR offering! The magnitude of change is well-recognised by banks and financial institutions, and they are demonstrating an increasing sense of urgency to address contracts maturing after 2021. More and more newly issued IBOR related products by your bank(s) will refer to a new alternative reference rate during 2021.

  • Plan actions

Knowing the alternative RFRs is an important input on creating a detailed action plan. Define a project team governance to manage this action plan and the status of the transition across different areas, business lines, and geographical locations. In particular, take care to ensure external resource availability regarding e.g. Legal counselling and system provider experts, as demand for these specialists will rapidly increase as the IBOR transition deadline approaches.

  • Act and implement

Step five is the implementation of your action plan throughout the affected areas of your organisation. In this ‘Act’ phase it is important to maintain the conversation with external parties, such as banks and system providers. It is also of vital importance to support the implementation across all relevant business lines and functions, maintaining support for go-live readiness in line with the defined action plan and deadlines.

A golden opportunity starts with IBOR knowledge build-up

Enigma Consulting supports you in knowledge build-up by providing ‘tailor-made’ workshops in order to discuss the impact on your corporate organisation related to different RFRs for different products based on your specific situation and to help you to prepare and become a discussion partner with your bank.

IBOR may well be a golden opportunity, but it is up to you as a corporate treasurer to seize it by acting rather sooner than later! Corporates: Caveat IBOR and build up your knowledge!

If you are interested in how we can help you to build-up your knowledge and to assess your IBOR related contract complexity or if you want to understand how we can support your corporate organisation in the IBOR phase out transition, you can contact us on:

dpluta@enigmaconsulting.nl or look at www.enigmaconsulting.nl

Daniel Pluta

 

 

 

What’s in store for the US dollar in 2021?

25-02-2021 | treasuryXL | XE |

In the opening weeks of 2021, the US dollar has seen a bout of strength. But how will the value of the dollar fare in the coming months? In the XE forecast, they will tell you what they think.

At this time, the onset of 2021 has brought a bout of US dollar (USD) strength. The USD Index has risen 2.2% from its 34-month low set on January 6th. This recent strength is a major contrast with the -15% performance the USD experienced over the prior nine months.

USD at a glance

What’s impacting the dollar right now?

  • Unemployment fell to 6.3% today from 6.7% last month.

  • The US Treasury bond yield curve is upward sloping and at higher interest rate levels, pointing toward a continued recovery.

  • The IMF, Goldman Sachs and other large investment firms are calling for a boom 2nd half to 2021.

  • COVID-19 cases have fallen dramatically in the US this week, and Johnson & Johnson is about to announce their vaccine.

These data points all hint towards positive US economic growth as 2021 continues.

Given the new U.S. presidential administration and the development of COVID-19 vaccinations, market participants are wondering what’s in store for the USD in 2021. To answer this question, it’s important to first review the dollar’s recent history.

The US dollar in review

From 2011 to early 2020, the dollar appreciated nearly +28% as global investors flocked to the US markets to buy US assets and participate in the booming US economy. This dollar uptrend held despite then-President Trump’s efforts to talk down the dollar, as higher US treasury yields and continued equity market returns kept the dollar firm.

Then COVID-19 struck in March 2020, changing everything.

The dollar initially sank in sympathy as global equity markets began to unravel. However, once the magnitude of COVID-19’s economic impact became more apparent, a new market “risk aversion” theme took hold. Investors quickly bailed on risky assets and flocked to USD-denominated “safe-haven” assets en masse, believing they would be more likely to maintain their value and hold steady even as financial markets crumbled.

In just two weeks, this mad dash into safe-haven USD assets spiked the USD Index +7.5% and left the USD with an artificial “risk aversion” premium built into its value from its perceived low uncertainty.

It has been this risk-aversion premium that then most influenced the USD’s 2020 USD trading.  For the prior nine years, traders had bought USD on good investor news to invest in US assets In the new COVID-19 world, traders did the opposite, selling USD on good market news.

Why?

Because traders were already overweight US assets and even more so with the newly purchased safe haven assets. So, as 2020 unfolded and the investment climate improved due to central bank and government actions, the need for safe-haven assets diminished and traders began unwinding these positions.

And, with this, the negative equity market correlation was born, and flipped risk-on and risk-off its head.

Ordinarily, the value of USD assets would rise in conjunction with increased market optimism (risk-on), and uncertainty or negativity would drive investors to sell their riskier assets in favor of safer ones (risk-off). Good news for investors would mean good news for the dollar, and the same with bad news.

Now, good news for investors was bad news for the dollar, and bad news for investors was good news for the dollar.  Economic fundamentals didn’t matter.

This theme held strong for the remainder of 2020. If US stocks went up (and they did!), then the USD would fall (and it did!). It was virtually guaranteed.

What’s going to happen in 2021?

To answer that question, we’ll need to consider two key questions.

  1. Will 2021 be a continuation of 2020’s risk-aversion trading theme?

  2. Will traders conclude that the USD risk-aversion premium has been wiped out and it is time to start trading off market fundamentals?

Up until this week, 2021 FX trading was looking just like 2020. Post-US election equity markets surged on the elimination of election risk, positive vaccine news and the idea of a large US fiscal stimulus package. Unsurprisingly, the USD fell -6%. And on January 6th, after the storming of the US Capitol, when uncertainty was reintroduced to the markets, the USD rose 2%.

So, what will it be for the dollar going forward? It depends on whether or not you believe the risk-aversion trading scenario will continue.

  • If you do believe this, then you likely believe the US dollar will continue to depreciate as global equity markets continue to move higher.

  • If you don’t believe this, then you believe the worst of the pandemic is over, traders have priced out the “risk-aversion premium” to the dollar, and that the USD will trade on fundamentals again—meaning good economic data and continued equity market returns will strengthen the USD.

In conclusion?

Should 2020’s risk-on and risk-off trend reverse, we will see a strong US dollar. The IMF recently raised the US’s 2021 GDP forecast to 5.1% from 3.1%, which was an outlier to the EU.

Additional vaccines coming onto the market could boost confidence, as would an additional fiscal stimulus package. The US could see unleashed economic growth in the second half of 2020, continuing to draw global capital.  Additionally, some currency moves may have gone too far, and natural flows will come back to the USD and US markets.

If February’s first week of trading is any indication, it looks like 2020’s negative correlation has broken as both the dollar and equity markets rallied in sync.

Are you curious to know more about XE?

Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

Who sets the rates? Common questions about currency exchange rates

18-02-2021 | treasuryXL | XE |

Ever wondered where the rates come from, and how they can impact you?
We answer some common questions in this guide to exchange rates.

Who’s in charge of setting currency exchange rates? If you’ve ever sent money overseas or checked the rates, this is a question that may have definitely crossed your mind. Who decides what is the value of money, and why do rates fluctuate that much during the day?

It’s normal to wonder, and fortunately for you, we’ve got the answers to those questions and more.

How do currency exchange rates work?

Every country in the world has its own currency, and each of these currencies is valued differently. When you exchange one currency for another, you’re actually buying money, just in a different currency than the one used in your country.

The exchange rate tells you how much the currency used in your country is worth in foreign currency. The rates constantly change for some countries, whereas others use fixed exchange rates. As a rule of thumb, a country’s social and economic outlook is the main factor that influences the currency exchange rate.

That’s the quick answer. If you’re in the mood for a more in-depth look, check out our previous blog post.

What are the main types of exchange rates?

The main types of rates are variable (or flexible) and fixed rates.

Most countries have variable currency exchange rates, which are determined by the foreign exchange market. Because these rates are flexible, they fluctuate every minute, often influenced by market movements, political events, economic forecasts, and more.

Countries such as the U.S., the United Kingdom, Canada, Japan, and Mexico all use flexible exchange rates. It’s important to note that even though government policies can influence currency exchange rates, the government can’t actually regulate them. The rates are always determined by Forex traders on the foreign exchange market.

Several countries use fixed currency rates, and that is because the government dictates when the rates change. This is the case for the Saudi Arabian riyal, for example. The fixed rates are pegged to the U.S. dollar, and the central bank in the countries that use this system holds U.S. dollars to keep the rate fixed.

How do forex traders establish currency exchange rates?

The market forces of supply and demand are the main factors that determine currency exchange rates. The level of demand for a currency determines its value in relationship with other currencies. For example, if the demand for British pounds by Americans increases, the supply-demand forces will cause an increase of the British pound’s price in relation to the dollar.

The exchange rates between two countries are affected by countless factors, both geopolitical and economic. Some of the most common of them include:

  • Inflation reports

  • Interest rate changes

  • Gross domestic product numbers

  • Unemployment rates.

Forex traders take all these factors and more into account when establishing currency exchange rates. If a country has a strong economy that’s growing, investors will be interested in buying its goods and services, which means that they’ll need more of its currency.

On the other hand, when a country has an unstable economy, investors will be put off and less willing to invest, which means that the currency will not be highly valued. Investors always want to make sure they will get paid back before deciding to hold government bonds in a particular currency.

How do exchange rates affect you?

The value of money affects every individual on a daily basis, as the prices of essentials such as groceries and gas at the pump are correlated to it. When the value of money declines steadily over time, it causes inflation, and the result of that is a price increase for everything, including basic goods.

If you’re traveling or making a payment to another country that uses a different currency, it’s important to check for exchange rate values and plan your finances accordingly. Many people check whether the currency of the country of their destination is strong or weak before booking a vacation. That’s because a weak currency in the destination country means that you can buy more of it with your own currency, so you have more money to spend on your trip.

How can you get the best rates when sending money overseas?

As we’ve said before, unfortunately there’s no specific time where you can guarantee you’ll get a great rate. But there are a few things you can do to help yourself out.

If you’re transferring money to someone in another country, you need to look carefully at your options, as some transfer methods are more expensive than others. For example, if you’re using your bank to make a transfer, you’ll often need to pay a fee on top of the exchange rates set by the bank, which are usually disadvantageous.

By using an online money transfer service such as Xe, you can save money on fees and get great exchange rates. Your money will also reach its destination faster, and the entire process of making the transfer is easy both on the website and the mobile app.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page