Foreign Exchange FX Archives - Page 22 of 36 - treasuryXL

The four expectations of Currency Management Automation

14-02-2022 | treasuryXL | Kantox | LinkedIn |

With FX volatility intensifying and exposing companies to even greater currency risk, treasurers & CFOs are faced with many challenges as they look to step up their FX risk management strategy. The key to this is currency management automation, but what are the critical problems an automated solution needs to solve to become a worthwhile tool in your treasury kit?

Click on the image above for the corresponding episode of CurrencyCast

The four main expectations of currency management automation for CFOs and treasurers are:

The need to improve time management
To remove operational risks
To improve the efficiency of treasury operation
To place themselves in a position to make a strategic contribution in terms of enhancing the value of the firm

Challenge 1: Improving time management

According to the 2021 HSBC Corporate Risk Management survey, 55% of treasurers say FX risk management takes up most of their time; and 44% find that automation frees up time. Throughout the FX workflow, members of the finance team manually execute many tasks. These are repetitive, time-consuming and add little value. The French have a wonderful expression to define those tasks: they call them chronophage — literally, they eat away your time. With more time at their disposal, treasurers could focus on more value-adding activities, such as improving and fine-tuning their forecasts.

Challenge 2: Removing operational risks

Throughout the FX workflow, operational risk is omnipresent. Operational risk is the risk that inadequate or failed internal processes can pose to your business. Take spreadsheet risk. From the moment an FX rate is sourced for pricing purposes to the budgeting process, and all the way to the cash flow moment of the post-trade phase, dozens, hundreds, perhaps thousands of spreadsheets circulate across the enterprise, magnifying the risk of manual data input error.

A recent Citi Corporate Treasury survey showed that 80% of FX risk managers remain reliant on Microsoft Excel. In our conversations with CFOs and treasurers, we noted that often, a handful of people or even sometimes a single individual is in charge of executing most –if not all– the tasks of FX risk management across the entire enterprise. These enterprises can often comprise of subsidiaries, each with its own set of currency pairs. This is the very definition of key person risk.

Taken together, spreadsheet risk and key-person risk are part of operational risks that can cause serious damage to your FX risk management strategy.

Challenge 3: Improving the efficiency of treasury operations

According to this same Citi Corporate Treasury survey, efficiency gains in treasury is the number one expectation of technology. There is a myriad of ways in which the efficiency of treasury operations can be improved in FX risk management.

Consider most Treasury Management Systems (TMS) shortcomings, even those with FX capabilities. Looking at the FX workflow, most TMS are incapable of proactively helping risk managers execute their tasks. Why though?

(a) They lack a robust rate feeder that allows the business to price with the forward rate when forward points are in favour or ‘against’.

(b) They are adequate for balance sheet hedging, but they fail to capture the type of exposure needed in cash flow hedging (e.g. forecasted exposure for individual campaigns/budget periods in static hedging; forecasted exposures for sets of campaigns/budget periods linked together for layered hedging etc. ),

(c) They lack the level of automation –during the cash flow moment of the post-trade phase of a hedging program– needed to efficiently handle the adjustment of hedges to the underlying cash flows.

Challenge 4: The need to make a strategic contribution in terms of enhancing value

HSBC’s survey showed that only 23% of treasurers see themselves as ‘best-in-class’ when it comes to FX hedging. With FX risk firmly under control thanks to a family of automated hedging programs and combinations of hedging programs, CFOs and treasurers would be in a position to:

(a) Diminish the variability of corporate performance
(b) Secure and enhance operating profit margins
(c) Improve the competitive position of the firm
(d) Make more efficient use of invested capital by boosting the sales/capital ratio and by minimising the amount of capital that needs to be set aside for collateral and margin requirements

Improving time management and removing operational risks are the most visible, the most tangible expectations of currency management automation, but they might not be the most important ones. Much more important for your company is to be in a position to improve the efficiency of Treasury operations and to make a strategic contribution towards enhancing the value of the firm.

Accepting Crypto Currency In Corporate Treasury

03-02-2022 | treasuryXL | ComplexCountries | LinkedIn |

As more treasuries will have to start accepting crypto, whether it be an emerging market like El Salvador, for digital assets, NFTs and other goods that are sold in the metaverse. This report explores the experiences of treasurers in setting up their systems to accept crypto currency.

This report is based on two treasury peer calls chaired by Simon Jones and was compiled by Monie Lindsey.

This report is based on two treasury peer calls chaired by Simon Jones and was compiled by Monie Lindsey.

The full 14-page detailed report is available to subscribers in our Report Library.

To find out about subscriptions and other value-added services, please make an enquiry.

Chair’s Overview

Following the CompleXCountries call ‘Accepting Bitcoin in Corporate Treasury – Lessons from El Salvador’, (Report Summary Here), the CXC community clearly did not see this as a one off. The necessity to accept Bitcoin & Crypto may become a reality for more Treasurers, but the path is far from being very clear. The purpose of this call was to share experiences and challenges, and learn from the various solutions Treasurers are putting in place if they have to accept crypto currency to support their businesses.

The session was extremely insightful and even if a Corporate is not accepting Crypto now, this report required reading for the Treasury community. It is a challenge that will increasingly become more common as corporations drive more digital sales channels. The regulated Crypto exchanges have seen significant growth over the last few years and the ability to exchange fiat for crypto and back to fiat has become widely available in the marketplace.

We posed the questions: Is this something that they have had to deal with or are going to have to deal with in the future? El Salvador was the first newsworthy case but on this call we gained insight to how it is becoming more mainstream in digital businesses and therefore becoming far more common for corporates around the world.

Non-Fungible Token (NFT) Definition. “A unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible.” Collins Dictionary, who picked ‘NFT’ as their word of the year 2021.

To summarise the key learning points:

Consumer businesses are targeting digital native consumers who are increasingly buying NFTs as collectibles or to demonstrate their alignment with a brand or product. This client base expects to be able to buy or trade NFTs in exchange for crypto assets that they might have accumulated from investments.
The marketplace and blockchain the NFT is issued on, will determine the crypto asset that can be used to buy the NFT, e.g. Ethereum or stable coins on the Ethereum blockchain.
Coinbase was the exchange of choice for the Corporate Treasurers who took part in this call, primarily because they are publicly listed and regulated in many markets around the world.
KYC & Onboarding procedures were no different for Coinbase than for opening a bank account at a relationship bank, it still took weeks, not days.
Some Treasurers allow NFTs to be purchased via a crypto currency, but immediately convert back to fiat currency, via the exchange provider, both to avoid volatility and because of uncertainty over the accounting, legal and tax implications of holding crypto currency. Bitcoin was not widely used, as it was deemed to be more open to money laundering concerns by the exchanges.
Crypto Exchange commission continues to be quite expensive and is not as tight as fiat currency exchange.
Accepting Bitcoin seemed limited to only El Salvador, where it is legal tender in addition to USD. (Corporates are required to accept BTC in payment should their client require it.) Other countries may follow.
Anti-Money Laundering controls continue to be top of mind and it’s important to make sure the NFT auction houses, marketplaces and collecting exchanges are able to trace the origin of coins to protect their corporate clients.

Conclusion: Highly insightful session, brings home the reality that as more businesses issue and sell digital assets like NFTs online for their products & services, it will be a requirement to accept crypto coins. No longer are crypto-assets like bitcoin just for speculative investment, but they are becoming the instrument of choice for some digital native consumers to use for purchases. Understanding the digital product & services strategy at a Corporate and the implications that might have for a corporate treasurer is fast becoming a necessity to supporting the business.

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CurrencyCast | Episode 1 – The 4 Expectations of FX Automation

26-01-2022 | treasuryXL | Kantox | LinkedIn |

It’s finally here! CurrencyCast, our new podcast, is live. Every week, we’ll provide bite-sized tips and expert insights to help you better manage foreign currencies and optimize your P&L results.

Click on the image above to watch the first episode: The 4 expectations of FX automation

This week, we offer our view on the make-or-break FX challenges treasurers and CFOs will face in 2022. Last year was a highly unpredictable year in terms of currency volatility and this year looks to follow a similar pattern, especially with a sharp shift in interest rates.

But how can you protect your business and profit margins from such instability and uncertainty? Our FX expert and writer, Agustin Mackinlay, outlines his expectations for shifting interest rate differentials across currencies, ongoing profit margin pressure due to rising costs and more during this episode.

He’ll provide insights on how to handle each issue so you can make more informed decisions for your FX risk strategy in 2022.

Head to your preferred channel and catch episode two, where we look at the: 𝐓𝐨𝐩 𝐜𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐞𝐬 𝐭𝐡𝐚𝐭 𝐰𝐢𝐥𝐥 𝐚𝐟𝐟𝐞𝐜𝐭 𝐲𝐨𝐮𝐫 𝐅𝐗 𝐬𝐭𝐫𝐚𝐭𝐞𝐠𝐲 𝐢𝐧 2022.

CurrencyCast | A podcast by Kantox

20-01-2022 | treasuryXL | Kantox | LinkedIn |

Introducing our new weekly FX podcast, CurrencyCast! A no-holds-barred series on the urgent foreign exchange challenges facing treasurers and CFOs today.

Every week, FX writer Agustin Mackinlay gets candid about what finance departments are doing wrong when managing their currencies and risk. He’ll provide bite-sized insights to help you better understand your FXrisk and push your treasury to the next level.

It’s an FX masterclass, all in under 10 minutes!

Mark your calendar for January 26th at 10am (CET) and subscribe to our YouTube channel to be one of the first to access our new series.

Subscribe now for the CurrencyCast!

PODCAST | Who does not lose, wins (Dutch Item)

19-01-2022 | Erna Erkens | treasuryXL |

Erna Erkens is valutacoach voor MKB en helpt internationaal handelende ondernemers om grip te krijgen op hun winst. Met ruim 40 jaar ervaring in het beheren van valutarisico’s, staat zij vooral bekend om haar recht-door-zee aanpak, eenvoudig taalgebruik en duidelijke uitleg. Virtueel drinkt zij dagelijks rond 10 uur een kopje koffie met haar klanten om het financiële nieuws door te nemen.

Waarom hebben de kleine lettertjes in vermogen opbouwen vaak de grootste impact? En waardoor is lijkt China de grootste wereldmacht te worden? Ontdek wat het verschil is tussen kennis en informatie, waarom velen van ons zo’n verzamelwoede hebben en last but not least… Waarom winst vaak tot net zoveel problemen kan leiden als verlies. Kortom: Een begrijpelijk gesprek over een onbegrijpelijke wereld waar we allemaal in leven.

Verder leer je in deze podcast:

Waarom het vaak niet om winst maken gaat
Waarom we teveel in geld zijn gaan vertrouwen, en geld vertrouwen is
Waarom je als financieel adviseur soms juist geen beleggingen moet bezitten
Bonus: Waarom je beter een kastekort kan hebben dan een broek te kort

Pak een kopje koffie erbij en schuif aan bij dit gesprek over mogelijkheden en onmogelijkheden met vreemde valuta.

Erna Erkens

Owner at EEVA

What are BIC/ SWIFT codes, how to find them, and how do they work?

03-01-2022 | treasuryXL | XE | LinkedIn |

Just booked a rooftop hotel in Manhattan? Or bought an authentic Chinese vase at an auction in Hong Kong? When making an international payment, you need payment details such as BIC (also known as SWIFT address), the country code and IBAN. Not sure where to find this key ingredient to an international money transfer? Our guide will show you all there is to know about SWIFT and BIC codes.

Your bank or other financial institution must know where to transfer money to send or receive money worldwide, but how do they know? Make way, for a BIC/ SWIFT code is about to enter the picture! If you’ve ever used Xe to send money or read our guide on sending money, you’ve probably noticed that you’ll need a BIC or SWIFT code. But what exactly is it, and where would you seek for it?

From what a SWIFT/ BIC code is and why you need one to how to find one quickly and use it for international money transfers, our guide will teach you everything you need to know about this code. It’s time to get ready, get set, and go!

What is a BIC or SWIFT Code?

BIC stands for Bank Identifier Code, and SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. Sometimes, people use the terms “BIC” and “SWIFT” interchangeably. A SWIFT code or SWIFT ID typically identifies banks and other financial institutions worldwide, for international transactions. More specifically, it says who and where these institutions are, so that your money goes to the correct place – you might even think of it as a global identity card for banks.

The International Organization for Standardization (ISO) recognizes and approves SWIFT codes for financial and non-financial institutions. Right now, there are over 40,000 live SWIFT codes in the world.

What does a BIC/ SWIFT code look like?

SWIFT/ BIC codes contain 8-11 characters that identify your city, country, bank, and the branch of your bank. The code may look something like this: AAAABBCCXXX

All muddled up? Let’s get this BIC format straight:

AAAA: 4-letter bank code that’s usually a shortened version of your bank’s name.
BB: 2-letter country code that represents the country in which the bank’s located.
CC: 2-character location code, pointing to the place where the bank’s head office is situated. It’s made up of letters and numbers.
XXX: 3-digit branch code that specifies a particular branch of the bank, usually the bank’s headquarters. These last 3 digits are optional, though.

To help you understand better, we’ve listed out the BIC/ SWIFT codes for a few large banks from around the world:

Scotiabank (Canada): NOSCCATTXXX
Charles Schwab Bank (US): CSCHUS6SXXX
Bank of England: BKENGB2LXXX
State Bank of India: SBININBBXXX

Why do I need a BIC/ SWIFT code?

If you want to send money around the world, you’ll almost always need to use a SWIFT/ BIC code. That’s because money transfers technically don’t actually transfer money around the world. Banks securely transmit information to one another through the SWIFT system or their other channels, which lets them know where the money should come from (which account should be debited), and which account should be credited with the money. In short, without this code, your bank won’t know where exactly they should send your money to.

So, it’s important for a bank on one side of the world to find the right bank on the other side, when it comes to international wire transfers, even when you use an international money transfer app like Xe, you’ll have to enter the BIC/ SWIFT code of the recipient’s bank for wiring money to the recipient, because the money will travel from your bank account to your recipient’s bank account.

How do I find my SWIFT/ BIC code?

Don’t worry, you have a few options.

Check the bank statements

You can usually find your bank’s BIC/ SWIFT code in your bank account statements. If you’re using an online bank, log into your digital bank account to easily view your bank statement.

Check the bank’s official website

Visit the bank’s website and check their Frequently Asked Questions (FAQs) section, international wire transfers, and other related links for their BIC/ SWIFT code. If there’s a search feature on the website, enter “SWIFT code” in the search box.

Contact your bank

In case you still can’t find the BIC/ SWIFT code, reach out to your bank via live chat, phone, social media, or email.

How do I verify a SWIFT code?

When sending or receiving money, always cross-check the BIC/ SWIFT code and other details with the recipient or your bank before you or the sender sends the money.

But why should you cross-check it?

As a matter of fact, if you enter a SWIFT code that doesn’t exist, the bank should reverse the payment you’ve made, and return your money. They’ll be charging a specific fee for that, though, and it might take some time before you get your money back.

As soon as it hits you that you’ve entered the wrong code to send money internationally (uh-oh), get in touch with your bank right away. They may be able to cancel the transaction, so keep your fingers crossed.

You can avoid such a scenario if you make sure that the BIC/ SWIFT code has:

No typing mistakes

You might think entering a SWIFT code is the work of a moment. But when you finally type it, character by character, it might seem as long as a marathon. Since it’s easy to make a mistake while typing in the code, try to copy and paste the code whenever possible.

The correct format

Always stick to the format of the BIC/ SWIFT code that the recipient has given you. For example, don’t type the country code before entering the bank code. And remember, there shouldn’t be any spaces between the characters in the code.

How do I transfer money using a SWIFT code via money transfer apps (like Xe)?

Once you sign up on online money transfer apps like Xe, you need to link your bank account directly to the app. After that, you can send money straight to the recipient’s bank account through a wire transfer, no matter where in the world he or she may be. You’ll usually have to follow these steps for wiring money between banks via Xe:

Log in.
Confirm which currencies you’d want to exchange. You can use Xe’s free Currency Converter tool for a quick check on the mid-market rate.
Enter the amount you wish to send.
Enter the recipient’s name and address.
Enter the recipient’s bank details, including the BIC/ SWIFT code and the International Bank Account Number (IBAN) of his or her bank.
Choose your payment method and confirm the money transfer.

Is IBAN the same as SWIFT?

No, IBAN and SWIFT are 2 different codes, but both of these do the same job – sending or receiving money. Banks use SWIFT codes to identify bank branches for making international payments. On the other hand, IBAN codes specify individual bank accounts for both domestic and international payments.

Do I need an IBAN number or a SWIFT code?

It depends on the country to which you’re sending money. For example, banks in the US, Australia, and New Zealand don’t use IBAN numbers, but they use SWIFT codes for different banking services. But if you’re wiring money to a country within the Eurozone, you’ll surely need a SWIFT/ BIC code along with an IBAN number.

Is a SWIFT/ BIC code the same as a sort code?

Nope, sort codes aren’t the same as SWIFT codes. Sort codes are 6-digit codes that help British and Irish banks to identify bank branches for domestic payments (payments within a country).

Do all banks use BIC/ SWIFT codes?

No, all financial institutions, especially some small banks and credit unions, don’t have SWIFT codes. Instead, these institutions contact banks that do have BIC/ SWIFT codes, and ask them to serve as intermediaries for wiring money. You might also come across some financial institutions that use SWIFT for only a certain number of their branches, and not all of them.

Is a SWIFT code the same for all branches?

It depends on the recipient’s bank. Some banks may have one BIC/ SWIFT code for all their branches, while others have unique SWIFT codes for each of their branches. Plus, since all the branches of a bank may or may not use the SWIFT network, the code usually specifies the bank’s head office or primary office. So, are you ready to make an international money transfer using a BIC/ SWIFT code? Download the Xe app or sign up today!

International Mass Payments for Growing Businesses

23-12-2021 | Xe | treasuryXL | LinkedIn |

Streamline your payment processes, and improve international business partner relationships. Spend more time delivering on your clients’ needs.

Business process outsourcing and business process automation are not new business models. Yet traditionally, they have been targeted at high-volume, manual tasks like data entry, document processing, and bookkeeping. Delegating international transactions to a mass payments service provider like XE saves your business, and often your recipients on each completed transaction.

One of the many benefits of working with a payment service provider which specialises in international money transfer is that we provide services based on transaction volume. A small business will often just need help to expedite the fundamental payment administration and remittance processes. a large business with significantly more concurrent transactions will typically prioritise access to a scalable payments platform that can integrate with their core financial systems.

The executive appeal of subscribing to a mass payments API through a financial services business like XE is that it provides measurable benefits, such as:

Cost containment by streamlining payment tasks
Greater efficiency and reduced errors
The ability to focus full-time employees on more strategic, high-value tasks
Reduced training and technology overhead
Opportunities to take advantage of volume-based discounts

Is your business looking to find savings opportunities by paying multiple international suppliers, contractors, or employees? Simultaneous payments triggered at optimal exchange rates minimises the impact of unpredictable currency value fluctuations on your bottom line. You can also initialise bulk payments when you feel the time is right, be it after business hours or on weekends.

The Right Payee, in the Right Currency, at the Right Time

XE Mass Payments services are can be made securely to beneficiaries in over 220 countries and territories, in any of 139 currencies. One of our clients increased the efficiency of their international remittances from two days to a mere five minutes.

Consider all the productive work, collaboration, and planning which can be done in those rescued hours which would have been otherwise spent filling out forms, routing payments, and reconciling accounts.

Are you ready to streamline your payment processes, and improve your relationships with your business partners overseas? Do you want to minimise administrative tasks, and spend more time delivering on your clients’ needs?

XE Mass Payments: A Proven Platform from the World’s Trusted Currency Authority

XE Mass Payment API and related services:

Are on par with the banks in terms of security, privacy, and regulatory compliance.
Rival or exceed bank services in terms of speed. We work to avoid intermediary banks wherever possible.
Are less costly for your business, and generally don’t carry recipient fees.
Are an excellent way to reduce manual keying errors.
Are available to your business on your schedule, during the week or on weekends.
Can help you qualify for discounts for prompt payment (such as 2% within 10 days)
Can be contracted as a stand-alone online managed service, or as an integrated API solution to interface with your company’s financial ERP and accounting applications.
Are a great way to avoid pitfalls many companies make when doing business with trading partners in emerging markets. Late or inaccurate payments to employees, contractors or suppliers are bad for your company’s reputation and can be disruptive to the natural flow of your business.

Here are some additional details about our Mass Payments offering.

Mass payments services are packaged for your company based on:

The countries where your suppliers, employees, and other beneficiaries are located
The volume of payments you manage per month
The channels through which your business payments flow, be it through our APIs or our managed service
Any advisory or foreign exchange services which your company needs, be it expanding your payments to emerging markets, risk management, market orders or forward contracts.

Tame the ghost! Cancellations & currency management in Travel

20-12-2021 | treasuryXL | Kantox | LinkedIn |

How to automate the FX treatment of cancellations

It is no secret that the wave of cancellations following Covid-imposed travel restrictions has been a nightmare for travellers, airlines, hotel chains and tour operators alike. In the United States alone, cancelled domestic flights peaked at 137 thousand in April 2021. Largely due to cancellations, air traffic in Europe in 2021 was barely equivalent to 43% of the level seen before the pandemic.

Given the amount of time and resources devoted to adjusting their refunding policies, many players in the industry are still scared by the ghost of cancellations. But is that fear warranted? Not when it comes to FX management. This is because Currency Management Automation gives travel companies the tools to minimise the P&L impact of cancellations.

When it comes to FX management, the message is crystal clear: the ghost can be tamed.

Cancellations and FX exposure

FX risk management is a process in three phases: the pre-trade, the trade and the post-trade phase. Cancellations are an important element of the pre-trade phase, when the exposure to currency risk is collected and processed. Now, the type of exposure and the way it is managed depends, crucially, on each business’ pricing dynamics (see: “The hidden secret behind the different types of FX exposure”).

In the Travel world, dynamic prices are the norm (see: Currency Management Automation in Travel Distribution). OTAs, Bed banks, Hotel chains, DMCs and others frequently update their FX-denominated prices, and their cash flows are at risk from the moment of the bookings till settlement. For this reason, most Travel distribution firms apply micro-hedging programs that take those ‘firm commitments’ as the key FX exposure item.

This is where cancellations kick in. A cancelled FX-denominated booking diminishes the exposure to currency risk if the corresponding hedge has not been executed, or if an already executed trade is closed out at the same FX rate. Otherwise, there would be a situation of over-hedging. Manually adjusting hundreds or thousands of individual pieces of exposure to their corresponding hedges can quickly become an impossibly complicated task.

Taming the ghost in FX-related cancellations

Currency Management Automation provides treasurers with a number of tools to tame the ghost of cancellations. The first line of defence is to include —as part of business rules defined in the process of FX automation— an automatic cancellation rate. For example, if managers set an average cancellation rate of 10%, Kantox Dynamic Hedging® will hedge the remaining 90% hedge of the bookings.

As more information becomes available, this cancellation rate can be refined and adjusted by management when it so desires. While it is good practice to try and anticipate events, perfect accuracy cannot be expected in matters related to travel cancellations, especially in the current situation. This is why a second line of defence is provided by what our FX automation software takes as ‘negative entries’, a more efficient way to deal with cancellations. Let us briefly see how that works.

An entry is an individual piece of exposure. As part of the implementation phase of the software, risk managers establish a set of business rules that include —for each currency pair— the accumulated value of the entries they wish to hedge. These instructions also include a rule for setting negative entries from their own ERP, Booking Engine or Data Lake in the event of cancellations. API-transmitted negative entries automatically cancel the corresponding FX exposure.

But what happens when a negative entry is pushed after the corresponding hedge has been executed? Not much. Because travel-related FX exposure typically includes hundreds/thousands of individual transactions, new positions are constantly entered for the same currency pair and value date. The more granular the information included in these entries, the more accurate the FX hedging process, and the better the traceability of each piece of exposure.

Conclusion: speed is the name of the game

As the effects of the global pandemic still loom large, the ability to quickly process cancellations is a must for airlines, hotel chains and wholesalers in general. FX management is an integral part of this process — and it relies mostly on automated micro-hedging programs for bookings or ‘firm commitments”.

These micro-hedging programs, in turn, automatically treat cancellations as a key element of the ‘pre-trade’ phase of exposure management. If your aim is to tame the ghost of cancellations —while relieving the finance team from performing repetitive, resource-consuming and potentially risky manual tasks—, FX automation is the starting point.

The time to act is now!

Foreign Exchange Hedging – Putting More Flow into Your Cashflow

16-12-2021 | Xe | treasuryXL | LinkedIn |

Volatility in the market creates hedging opportunities. You can more accurately forecast margins, and have peace of mind knowing your costs won’t increase.

Any business that imports or exports goods or services have a foreign exchange requirement. Depending on how large the volume of their orders and/or sales, foreign exchange can significantly impact gross margins and has the ability to derail profit.

Importing costs fluctuate with the value of the local currency – for example, the New Zealand dollar (NZD). In the past 5 years, the NZD has moved by an average of 8% per year. In that same timeframe, if your suppliers either increased or decreased their prices by this amount, most people would do everything possible to try and mitigate the downside. This is a primary value-add of foreign exchange traders and brokerages that have the best interests of their clients in mind.

How to hedge

Volatility in the market creates hedging opportunities. By hedging, you are able to more accurately forecast margins, and have peace of mind knowing your costs won’t increase. This allows you to focus on your core business functions, be they manufacturing, distribution, or otherwise.

A forward exchange contract (FEC) allows you to buy or sell a defined amount of foreign currency on a given date in the future at a defined rate. The disadvantage of an FEC is that you may miss out on favourable market movements. However, since consistently accurate crystal balls aren’t standard issue for any ForEx advisor, the hard part is knowing where the market will go.

Experience, expertise, and depth of information resources are two of the differentiating factors between XE and our competitors.

What stops hedging?

Hedging challenges arise when your forecasts aren’t reliable, and you receive inaccurate information from sales or production advisors. Or perhaps you are running a lean supply-chain and don’t want to commit tying up cash flow to an FEC.

You can incorporate hedging into your budgeting to ensure your costed rates are covered. This prevents a situation where the currency is lower than what you’ve budgeted, and potentially a loss is being made each time you purchase FX.

For exporters, there is even less appetite to hedge. This is partly because the NZD has been strong over the past 5 years against most currencies.

The importance of interest rates

Every country wants their currency lower to attain more from exports. You will hear New Zealand’s Reserve Bank (RBNZ) say they want the currency lower. In their view, having the NZD/USD rate at 65c instead of 75c is a major positive. This isn’t what importers want to hear, but it’s the reality of the foreign exchange markets.

Interest rates dictate currency movements. The RBNZ pays particular attention to inflation, wages, GDP and employment data to make their decisions. But, the NZD is at the mercy of international reserve banks, including the US Federal Reserve and the ECB (European Central Bank).

Conclusion

Volatility is here to stay. Big swings in the market will persist. It’s almost impossible to predict where the markets will move. Yet XE has the people, processes and technology to give your business the best odds of success.

It’s unfair to judge yourself on attaining the very best rate when hedging foreign exchange. Our mantra is to empower businesses to compete to their full potential in international markets.

XE works with over 6,000 clients throughout New Zealand, and several thousand more around the world to help manage foreign exchange requirements to minimise fluctuations on margins. It would be our pleasure to advise you on how to mitigate the impact of currency on your business’ cash flow.

What should you know about SWIFT system transfers?

09-12-2021 | Xe | treasuryXL | LinkedIn |

The SWIFT network is well-known and used by banks around the world, but it may not be the best channel for you to send your money transfers through.

The Society for Worldwide InterbankFinancial Telecommunication (SWIFT) network, which was founded in Belgium in 1973, handles about half of the world’s cross-border fund transfers. As international commerce has grown, the SWIFT network has grown commensurately. It handled about 2.5 million daily transactions in 1995 and more than ten times that many in 2015.

But SWIFT is not a bank. It does not even touch the money which passes along its network. Instead, SWIFT sends payment orders to correspondent accounts at member banks. As such, SWIFT is strictly a bank-to-bank transfer service.

If you’re sending a money transfer with a bank, you’ll become acquainted with the SWIFT system. But is it the best channel to send your money through? We’re not so sure.

What does the SWIFT system mean for you and your money transfers?

Added fees. In order to be members and transfer through the SWIFT system, banks are charged SWIFT fees. To counter this, both the recipient and the correspondent bank usually add fees to SWIFT transfers. Somebody, either the sender or the recipient or a combination of both, must pay them.
Bad exchange rates. There are some hidden currency transfer costs, at least in most cases. Currency exchange rates vary in different markets and at different times. Banks routinely choose the worst possible currency exchange rate. Then, they quickly move the money to another marketplace and pocket the difference.
Long transfer times. As mentioned above, SWIFT completes “most” of its transactions within thirty minutes. In this case, “most” means about half. Some transactions could take several days to process. Other delays, such as large transfer amounts or first-time users, could delay the process even more.

How does the SWIFT network work?

Today, SWIFT connects about 10,000 financial institutions in about 200 countries. That sounds sweeping and impressive. But most of its transfers go through fewer than two hundred banks, brokers, clearinghouses, and corporations.

Furthermore, SWIFT is the industry standard for linguistics and code, even for non-SWIFT institutions like Xe. SWIFT works with various international organizations to set content and format standards for messages and transactions. In other words, the network infrastructure usually handles codes as opposed to account numbers and other sensitive information. That’s one reason SWIFT is so secure.

Another reason the network is secure is that its three data centers in the United States, Switzerland, and the Netherlands communicate with each other via subterranean or submerged cables. These communications channels are difficult to hack.

SWIFT upgraded its network infrastructure in 2001 and again in 2008. Not coincidentally, 2008 was also the year international funds transfer prices went up significantly. As part of the upgrade, SWIFT required all member institutions to replace their bilateral key exchange encryption hardware with a Relationship Management Application. Member banks gladly passed these costs along to consumers.

How secure is the SWIFT system?

2008 was a long time ago in technological terms. The smartphone you had back then, assuming you had one, probably looked like one of those World War I field telephones compared to the one you have now. Yet 2008 was also the last time SWIFT did any major security upgrades.

The network paid the price in April 2016. Hackers used malware to steal about $81 million from the central bank in Bangladesh. The malware intercepted the supposedly unbreakable SWIFT codes and also covered the hacker’s tracks. Perhaps most disturbingly, SWIFT admitted that these thieves, or ones similarly equipped, had tried this before.

A few months later, an Ecuadorian bank sued Wells Fargo after the latter allegedly honored a $12 million fraudulent transfer. Hackers obtained canceled transaction requests, altered the amounts, and submitted them.

Questions continue about the network’s security. Some banks claimed they have lost money to hackers in much the same way. These allegations are under investigation.

Can you make money transfers without using the SWIFT system?

Yes, you can! Many banks and providers utilize the SWIFT system to send their money transfers due to its security, efficiency, and well-established reputation, but some providers instead opt to use other channels (or even create their own channels) to send money transfers.

Do you want an example of one such provider? Well, now that you mention it…

Sending money with Xe

SWIFT might be the largest international funds transfer platform in the world. But in terms of security, efficiency, privacy, and a few other areas, it falls short.

So, if you need a reliable and affordable way to send money overseas to family or friends, give Xe a try. We send money through our own money transfer channels, which means that we aren’t on the hook for additional SWIFT system fees and delays—and neither are you.

But don’t worry: our channels are still completely secure. We adhere to regulatory standards in every country that we do business in, with bank-grade security measures to ensure that your money and information are completely safe