What does experience in Treasury get you?

10-06-2020 | Niki van Zanten

In the wonderful world of Treasury there is an easy and digestible answer for most things, but to cover the full context requires general elaboration. In other words, there are always main points but fine-tuning is equally important and the devil is in the details.

Keeping this in mind, let’s get right into attempting to answer the headline question of this blog and unravel what experience can mean for you in financial risk management with the following points

  • The answer before the analysis
  • The right analysis and additional validation
  • Speed when needed and a reserved approach 
  • An actual opinion
  • Leadership in crisis
  • Holistic approach to Finance and ability to see what’s really going on

The answer before the analysis

At school you have the smart kids who have the answer for tough questions (lets say for conversation sake a math equation which looks like this 3(1-2x)=-9, where question is what x is*) and get there by taking the necessary steps** to come to the correct answer. This is what you are taught and it leads to the desired result. Then, there is a second group who shout out the right answer immediately but skipped all the steps involved. The teacher will disapprove of this behavior as it’s not how you are taught to handle a mathematical problem. Also not all kids can be taught to handle problems this way. If experience were to be molded into these group of kids, it would perhaps be one who can answer the question immediately and then explain this steps in retrospect. In financial markets this combination is very valuable as going for the process can be cumbersome and hard to explain, unless you see what will happen at the beginning.

The right analysis and the right questions

Imagine you walk into a wine shop and ask for a bottle of wine to combine with a mouth watering turbot with lobster Bearnaise sauce. The wine shop owner recommends a Montrachet**, asking no further question. You ask him, why this wine? He answers the following; because it is a thick buttery wine thus perfectly combining with the richness of Bearnaise. Also this happens to be an excellent year from an equally exceptional producer. You end up buying the bottle to return home and taste a thirteen in a dozen overpriced bottle of wine which does reasonable well with the food but has no element of surprise or the fascination one might expect.

A few question from the wine shop owner like, what kind of wine do you appreciate a lot and what do you like about it or how much is your budget would help you on the way. The best question from your side is potential, did you ever try it? If it turns out he didn’t try it and is still trying to sell it to you he has a close resemblance to a very typical sales person in the financial sector. In other words, experience enables people to ask the right question as well as create a value and advice instead of value add for the selling party only.

Speed when needed or a reserved approach

Typically, it is assumed that decision making in financial markets and Risk management requires speed. In most cases, this is correct, providing you understand of the exposure for which your are hedging as well as the derivative you are using. Put in a simple example, when hedging a 5 year INR loan, experience will tell you to do some extra due diligence on the accuracy of the underlying exposure for the simple reason that the consequences can be significant if things go wrong. Immediately, you will also realize a 5 year tenor on INR is either not liquid or the credit component is priced in at a hefty charge replacing your FX risk with an interest risk on the roll over. If you do not execute with speed, you could be exposed to the spot risk; if you execute to fast, you might hedge something not required or with a derivative which doesn’t do the job as intended. A seasoned advisor will be the best of both worlds.

An actual opinion

Experience creates a backbone as well as a level of comfort to believe what you are saying. Consequently, this boils down to the question; Why is someone trying to sell something to me? Because you need it or because they need you to make their PL? This goes into the discussion on whether an advisor has an intrinsic or extrinsic motivation. In my view, experience is not a guarantee on where motivation comes from, but it had a lot more time to positively develop. You will hear what you are better of hearing than what you want to hear. On top of that, the advise will be more holistic as it takes a while to get all the bits and pieces of treasury together, let alone how it fits across departments in a company.

Leadership in crisis 

Argentina 2018. Hefty devaluation on the currency as well as very steep and volatile interest rates combined with liquidity issues, not to forget the social and economic disaster hitting many citizens. Situations like this, attract senior management attention like Winnie the Pooh spotting a jar of honey. One might be inclined to leave the ”when to hedge or not” decision to senior management or have endless meetings discussing business mitigation. Each crisis has different triggers as well as solutions. A seasoned crisis manager does add direct value in not only identifying root cause of what’s going on, whether financial instruments actually provide relief or are a black hole of money and in putting together the right and moreover realistic guidance for the business. I am aware of the fact that people do not like hearing bad news, but not listening to it usually brings problems back on steroids. 

Holistic approach

This is a tough one. Most people will agree, the big picture is the best one to follow, but its very common across corporates to religiously hedge PL exposures. Even in cases where there are conflicts, like the cash flow at company level being different sign than the PL FX exposure, often a bogus hedge is implemented. A holistic approach and good target setting, helps you pick the strategy with the overall best results and experience.

Conclusion

These are just a few considerations on why experience can provide added value in (FX) risk management beyond the well know assumption that it provides a way to do more in less time and is a great way to also transfer knowledge down to the younger workforce.

Hope this gives some food for thought and many fruitful discussions.

 

* multiply by 3 giving 3-6X=—9 and then deducting 3 on each side reducing equation to -6X=-12 revealing the answer.

** Montrachet is one of the words most sought after white wines. Also happy to discuss wine but that’s a different beast and business proposition.

 

Niki van Zanten

FX specialist

 

Vrije Universiteit offers Summer Course Fundamentals of Treasury Management

| 09-06-2020 | VU Amsterdam |

Through this link we will inform inform you about the Summer Course Fundamentals of Treasury Management.

The definitive course details are being completed shortly.

You can reach out directly to the VU via [email protected] for more information.

 

 

Meet our Experts – Interview Aastha Tomar

09-06-2020 | Aastha Tomar | treasuryXL

Aastha Tomar has joined treasuryXL at the beginning of 2020 as expert and already published 3 great blogs:

Aastha has been responsible for setting up of Treasury teams for her organizations from scratch and has been a founder member of FX Treasury in a Bank. Being in front office role throughout her career has made her indispensable for her organizations due to her business development and stakeholder management skills. She has single handed led transactions to the tune of USD 5Bn.
Aastha is an Electrical Engineer and master’s in finance, both from premier institutes in India. Her inquisitiveness to learn something new and accept challenging work is responsible for her stints in Software development, Investment banking, Banking and Entrepreneurship.
In her free time Aastha loves to write blogs/ articles on various topic ranging from leadership, life experiences and sustainability, her latest love.

 

We asked her 9 questions, let’s go!

1. How did your treasury journey start?

My first exposure to how Treasury actually works was quite early during my internship in my MBA. I was lucky enough to do internship in one of India’s largest Corporate Treasury. It was then I decided that I want to make my career in Treasury. Therefore my career choices after MBA were always made while keeping in mind that I have to move towards being a corporate Treasurer.

2. What do you like about working in Treasury?

Treasury is a very fascinating department, there doesn’t goes even a single day where you don’t learn something new. Every day brings a new aspect to the profile. You have to be on your toes always to be up the curve which is the best part. You are always on top of what is happening in the world and how it is impacting the business. You can always make a positive impact on organisation’s bottom line by being always ready with action of any kind of impact.

3. What is your Treasury Expertise?

I have worked in Corporate finance, fixed income financing through loans and capital markets and have worked in FX Treasury which included risk management, interest rate risk management and FX risk management.

4. Do you have examples of risk mitigation, creation of opportunities and/or cost savings?

I was responsible for ISDA negotiations where we always made sure that default covenants for the counter party are strict and always made sure that the covenants are adhered to and did frequent monitoring for the same. This always kept us informed and saved us from any shocks from covenants default which in turn would have led to default in the derivatives done with the counter party.

5. What has been your best experience in your treasury career until today?

I was the founder member of Treasury in my previous organisation. I joined the organisation before the bank was formed. The initial few months were very demanding as it involved infrastructure set up, documentation, informing corporations about our bank.  After much hard work and after few months I cracked one of the biggest deal for that year for my bank. It was such a nice experience where all your efforts which you put in finally bore fruit.

6. What’s the most important lesson that you’ve learned as a treasurer?

Time is for essence for a Treasurer, we have to take actions swiftly and seamlessly. Each day is different and bring new challenges therefore a Treasurer should be ready to face them  . Always think out of the box- what new products can be used, how to make most use of technology, how make a team which is self motivated and work towards a common goal.

7. The coronavirus is undoubtedly an unprecedented crisis. In general, can you elaborate on the impact this virus has on treasury from your perspective?

The corporations with strong risk management approach, with clear understanding potential risk on business through risk evaluation tools, such as sensitivity analysis, shall be the best place during the current scenario. They would have their foreign currency exposure hedged to an optimum limit, sufficient cash to work with and therefore, during these times, would be able to direct their efforts to improve operational efficiency, carry out M&A evaluations  rather than trying to learn swimming after being thrown in the waters. Business Continuity Management came into play and the organisations which has BSM only in theory in their policy books took lot of time to adjust to the new normal. Thus, COVID 19 brings additional responsibility of treasury towards ensuring corporations not only survive but thrive during the new normal.

8. What developments do you expect in corporate treasury in the near and further future?

One thing has been proved that there is no running away from the Technology. You may be in finance field but you got to know the technology as well. The major development which now will take place will be to reduce as much human intervention as possible in the working of Treasury which will make sure that if at all any such scenario is faced in future work can go on without much impact.

9. How have you seen the role of Corporate Treasury evolve over the years?

I answered this question in my article “The Missing Part of a Treasury Job Description“:

” Gone are the days when a Treasurer was just involved in risk management and ensuring liquidity. In current scenario of news going viral each action creates a ripple effect. As famous Jane Goodall once said : “You cannot get through a single day without having an impact on the world around you. What you do makes a difference, and you have to decide what kind of difference you want to make”. A Treasurer has to take an active role in policy making and lead her organization towards sustainability and protecting consumers  ”

 

Aastha Tomar

FX & Derivatives | Debt Capital Markets | MBA Finance |
Electrical Engineer | Sustainability

 

 



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How SMEs should select a BAAS platform?

| 08-06-2020 | Carlo de Meijer | treasuryXL

In my last blog BAAS and SMEs: New Opportunities I explained what Blockchain-as-a-Service is, where it could be used for and what the benefits are for SMEs. But another question is: how should SMEs select BAAS providers and their offerings. What are the various issues they should look at to get the most out of it. In other words: how should SMEs deal with this?

Why many SMEs move to BAAS?

But first, why this growing interest by SMEs for Blockchain-as-a-Service (BAAS)? There are various reasons for that. Such a the promised benefits in terms of efficiency, simplicity, transparency, speed, costs etc.

BAAS has some interesting use cases ranging from smart contracts, document origin tracking, resource sharing, single window, contract execution and spend rationalisation.

And BAAS could be used in various business activities like food safety tracking, international transactions, retailer industry, supply chain management, and trading.

What issues for SMEs to consider?

But before a company decides to start integrating BAAS services in their existing infrastructure it is important for them to consider a number of key issues. They should ask themselves a number of key questions.

Such as, does the company really need BAAS (or blockchain)? If so, for what purposes? And what are the specific (basic) requirements to look for at the “ideal” BAAS provider? What other factors to be considered? And finally, which BAAS provider offers the right and best type of solutions for the company?

Do you need BAAS or Not?

One of the first questions a company should ask themselves is do they really need BAAS. Whether or not BAAS matters to a company will depend on a number of issues.

Does the company already works efficiently from a cost and processing point of view? There may be hurdles in the company in the form of managing varied database, browsers, firewalls, application servers, and hardware, that could make it very difficult to integrate BAAS offerings into the legacy network of the company.

And does the company have the team skills that are comfortable and confident (or not) in using BAAS? Do they already use (one or more) cloud providers? And if so, do they have enough experience with these. This question is especially relevant because BAAS offerings are evolving quickly.

Other questions that may determine all or not choosing BAAS will be the tools available, choice of operating systems, ease of use, and pricing, thus costs.

So many things to think about, investigate and discuss.

Some broad guidelines for Selecting a BAAS Partner

Given the lack of readily available guidelines and best practices a lot of discussions and evaluations are needed into the process of selecting a BAAS provider or solution. Here are some broad guidelines a company should consider.

BAAS provider experience
First of all the company should ask themselves has the BAAS provider prior experience in setting up blockchain infrastructure? A company should ensure that the BAAS provider has proven experience in developing and deploying Blockchain technology. Companies should be ensured that the implementer department of the BAAS provider has professional staff that could easily attain the complex solutions for the enterprises. Companies should also ensure that the BAAS provider disposes of a good developer community, thereby guaranteeing “excellent output”.

BAAS provider’s commitment
There is also the question of BAAS provider’s commitment? Delivering quality is of great importance when choosing the right BAAS provider. A company should therefore probe their commitment to quality, process and standards of BAAS offerings.

Security assurance
Another critical issue that a company should investigate is can the BAAS provider deliver security assurance? In the first place they hey should ensure that –  for privacy and security reasons – BAAS offerings are built on permissioned blockchains. Given the variety of security issues ranging from application level to server level, it is important to look for potential gaps in security assurance in the proposed BAAS implementation plan.

Seamless deploying
A company should also look if the BAAS provider has enough experience in deploying. A company should evaluate the BAAS provider’s experience in deploying cloud-based solutions for operating systems similar to that of their organization. SMEs should  thereby look for BAAS providers that offer quick and economic deployment, testing, staging, and good production line. Companies also need to ensure that the new Blockchain infrastructure integrates seamlessly with their legacy systems.

User-friendly
A company should make sure that the proposed BAAS systems and processes are user-friendly and easily to adopt. After all, they look for  a system that their employees do not find difficult to use or navigate.

BAAS innovation
SMEs should also ask how innovative BAAS providers are. As BAAS solutions may vary from provider to provider, innovations might be a real trigger in case of any blockchain deployment. Innovations in the BAAS marketplace can create a more different type of BAAS architecture for a company’s organization.

Cost control
But also in terms of costing control the company should be aware of the real costs. Can a company be assured that they just pay for the value proposition delivered by the BAAS provider? Companies should therefore carefully analyse the pricing options and post-deployment support options and modalities. They should investigate if there are hidden costs linked to the BAAS contract.

Other features of BAAS offerings to look at

But next to these issues there are other basic features of BAAS offerings a company should look for. These include, amongst others, things such as offering good backend or backup solutions, quickly add up new additions to the platform, offer technical support in case of self-deployment etc.

Need for backend services
One key issue that should be investigated thoroughly by SMEs is how BAAS could deliver a company’s unique need for backend services such as integration of popular features and mainstream technologies. A BAAS provider should at least provide some key deliveries including data security, process control, costing control and integration. These backend services should support a wide range of applications without changing the legacy network, often characterised by multiple layers of the data sources, processes and workflows.

Companies should also know  the ins and outs of the blockchain platform in order to avoid risks. This asks for adopting proper monitoring and managing tools to manage the BAAS solution network effectively. For security reasons it should be made sure that the application data and user data “should stay within the boundaries of the platform” .

There are also a number of process control requirements for the application. SMEs should be guaranteed that the new BAAS environment needs to keep maintaining the original performance all the time. Some performance checking tools could let companies know how much capable their blockchain solution really is. It also needs to have protection mechanism from hackers, controlling data flow, computer resources, active monitoring tools etc.

Smart contract offering
When considering BAAS a company should make sure that the BAAS provider offers the smart contract integration with the deployment. As you have read in my former blog smart contracts are an important part of any BAAS solution. These allow the companies to electronically measure and encode all terms of the contract so there can be no dispute. Though they are not (yet) legal contracts, they allow the enforcement of an agreement between parties under pre-agreed rules, but also enforces the penalties in case of any rule breaking situation.

Access management
And there is the issue of who and who may not have access to certain information within the organisation. Companies should look for identity based consensus solutions as all the enterprise will operate with known identities. Not everyone in the company should have access to internal securitised information.

It is therefore also important to look for secure Identity and Access framework integration with the BAAS solution. It will enable companies to control the user access from critical information in the organisation, helping the administrator to regulate and control access all over the network.

Flexible deployment
And there is the issue of flexibility in deploying BAAS solutions. BAAS providers should offer versatility when it comes to BAAS frameworks. This asks for the availability of a variety of toolsets for companies. Companies need to have a choice in case of choosing the perfect framework. They should choose a BAAS operator that offers optimal support.

What else to consider?

A final, and may be the best way to select a BAAS architecture is the existing customer ecosystem. In many cases BAAS companies that can offer the most advanced and trouble-free BAAS have a large customer base. So, a BAAS provider with good and positive customer base could be a sign of good quality services.

After having answered all these many questions a company may (or may not) be able to select their favourite BAAS provider. On Google you may find various oversight lists of BAAS providers with many ins and outs.

Enjoy your BAAS journey!

 

Carlo de Meijer

Economist and researcher

 

 

 

Source

Crypto Service Providers bound by the Dutch Wwft obligations

| 05-06-2020 | treasuryXL | Enigma Consulting

The Dutch Money Laundering and Terrorist Financing (Prevention) law, better known as the Wwft, is recently modified and executed. The most obvious change is undoubtedly that crypto service providers have come within the scope of anti-money laundering legislation.

Blog is in Dutch

Wat is er gewijzigd?

In 2018 voerde de Europese Unie een set van wijzigingen door in de bestaande Europese antiwitwaswetgeving. Nu, twee jaar later, is deze actualisatieslag ook doorgevoerd in de Wwft.

De volgende zaken zijn onder andere toegevoegd aan de Nederlandse antiwitwaswetgeving:

  1. De uitbreiding van het toepassingsbereik naar nieuwe takken van sport. Vanaf heden moeten bijvoorbeeld ook belastingadviseurs, kunstdealers en makelaars de Wwft-voorschriften naleven.
  2. Het maximale bedrag voor anonieme prepaidkaarten en van toegestane terugbetaling in contanten zonder klantidentificatie is teruggebracht tot respectievelijk €150,- en €50,-.
  3. Aanbieders van diensten voor het wisselen tussen virtuele valuta en fiduciaire valuta en aanbieders van bewaarportemonnees (hierna: cryptodienstverleners) dienen zich verplicht te registreren bij De Nederlandsche Bank (hierna: DNB).

Waarom zijn virtuele valuta in scope van de wetgeving gekomen

De EU achtte de aanpassingen noodzakelijk omdat het witwasrisico zich meer en meer op voorheen niet onderkende gebieden bleek te manifesteren. Vooral het toegenomen gebruik van virtuele valuta stemde de wetgever bezorgd. Vanwege het anonieme karakter van veel virtuele valuta lenen deze zich immers bij uitstek voor witwaspraktijken. Om witwassen en terrorismefinanciering het hoofd te bieden is daarom de registratieplicht voor cryptodienstverleners in het leven geroepen. Geen registratie betekent dat cryptodienstverlening in of vanuit Nederland niet is toegestaan.

Voor bestaande partijen is een overgangsperiode van zes maanden ingesteld, maar uiterlijk 21 november 2020 moeten ook zij het registratietraject succesvol hebben afgerond.

Hoe gaat registratie in zijn werk?

Voor een succesvolle registratie moeten cryptodienstverleners bij DNB aantonen dat zij er een beheerste en integere bedrijfsvoering op na houden. Het voldoen aan de gestelde voorwaarden vergt nogal wat van een onderneming. Zo moeten cryptoaanbieders een set aan procedures en beleidsstukken overleggen waaruit bijvoorbeeld blijkt hoe onderkende integriteitsrisico’s zijn ondervangen en op wat voor manier het cliëntenonderzoek is vormgegeven en ingericht. Ook dient de organisatiestructuur adequaat te zijn opgezet, waarbij onder een onafhankelijke compliancefunctie aanwezig dient te zijn. Naast de genoemde organisatorische vereisten is ook een toetsing van de bestuurders en aandeelhouders verplicht ten aanzien van geschiktheid en betrouwbaarheid.

Zowel op administratief gebied als voor de praktische organisatieinrichting heeft de registratieplicht dus een grote impact. Indien DNB overtuigd is dat de cryptoaanbieder volledig voldoet aan alle registratievereisten schrijft DNB de cryptodienstverlener bij in het openbare register van cryptodienstverleners.

Piece of cake?

Nou, niet bepaald. Hoewel het niet gaat om een vergunningsaanvraag maar ‘slechts’ om een registratieaanvraag zijn de voorwaarden waaraan een cryptodienstverlener moet voldoen geen sinecure. Witwasbestrijding is dan ook een serieuze zaak.

Flink obstakel

De bijkomende administratieve, organisatorische lasten en compliance-inspanningen vormen dan ook voor menige marktpartij een flink obstakel. Bovendien ervaren de cryptodienstverleners de verwachte doorlopende toezichtskosten als hoog. De registratieplicht heeft de afgelopen periode dan ook al de nodige reuring teweeggebracht in het cryptodomein. Een aantal partijen heeft de ontwikkelingen niet afgewacht en is gestopt of vertrokken naar landen waar het toezichtsregime een stuk gematigder is ingericht. Zo staakte BitKassa per 19 mei de dienstverlening en vertrok cryptobeurs Deribit onlangs naar Panama. De consequentie van een vertrek uit de EU is wel dat cryptodienstverlening hier niet is toegestaan.

Gedegen kwaliteit

Hoewel de vereisten voor registratie in Nederland niet licht zijn, impliceert een inschrijving als cryptodienstverlener wel dat de bedrijfsprocessen van de geregistreerde partij van een gedegen kwaliteit zijn. Dit schept vertrouwen bij klanten en leveranciers en voor veel organisaties is dat een belangrijke reden om toch in Nederland voor een registratie te opteren. 

Vooralsnog onzeker

Voorlopige schattingen van het ministerie en DNB gingen uit van ongeveer 75 registratieverzoeken. Hoeveel van deze aanvragen daadwerkelijk zullen worden gehonoreerd is vooralsnog onzeker. Ter voorbereiding heeft DNB guidance afgegeven die de kans op een succesvolle registratie aanzienlijk vergroten. De komende maanden zullen duidelijk maken welke cryptodienstverleners daadwerkelijk door DNB worden bijgeschreven in het register. Dan wordt ook beter inzichtelijk in hoeverre de registratieplicht het bestaande Nederlandse cryptolandschap wijzigt.

 

Geert Blom

Senior Consultant at Enigma Consulting

How to Build a FX Risk Management Policy for Your Business

04-06-2020 | treasuryXL | XE |

If you’ve been keeping up with our blog over the past few weeks, then you should be all caught up on foreign exchange risk. You know that your organization likely has some degree of FX risk, that you should make it a priority to assess your risk level and exposures, and that foregoing FX risk management is one of the most costly mistakes your business could make.

This brings us to our next point: crafting a foreign exchange risk management policy. Having a policy in place is one of the most important steps your organization can take to address foreign exchange risk and volatility in the global currency markets. But if you don’t have a policy in place, or you don’t think your current policy addresses the full scope of your organization’s FX risk, it’s time for an upgrade.

Not sure what to do or where to start? Let us take you through the steps of developing your organization’s foreign exchange risk management policy.

Why do you need a foreign exchange risk management policy?

Here’s the simple answer. If your organization doesn’t have a policy in place to deal with foreign exchange risk, you’ll only be able to respond to situations after they’ve already happened. Instead of acting to reduce your FX risk exposure, you’ll only be able to react to damage that’s already been done.

The markets are constantly moving, and volatility can have a real impact on your business’s bottom line without any warning. Without an FX risk management plan, you’ll only be able to jump into action once the damage has been done, and some of your initial response time will likely be taken up by strategizing over how to properly respond. In that time, the impacts to your business could easily increase.

A comprehensive FX risk management plan will not only give your organization a plan to jump into action in the event that market volatility has an impact on your business, but will also include long-term, ongoing measures to manage currency risk in your business’s day-to-day operations, even in times of muted volatility. By taking steps to reduce your risk exposures now, you can minimize the effects of volatility in the future.

What should your policy cover?

There’s no singular answer to this question, because there’s no such thing as a one-size-fits-all foreign exchange risk management policy. Every policy is different, because an effective policy will address your organization’s FX risks, based on your day-to-day operations and exposures.

There are, however, a few basic elements that every policy should make a point to include.

  • How much foreign exchange risk your business can handle, and over what time periods.
  • The tools your company will use to mitigate said risks.
  • Who in the business is authorized to make decisions about FX risk.
  • A robust process to manage currency risk on an ongoing basis (rather than ad hoc reactions).
  • Long-term strategic planning decisions (as opposed to just day-by-day developments).
  • Measures and action items that can be shared with a group of people, so FX risk management does not fall solely on one key person.

Once the policy has been created, it’s also important that you have a process in place to share it with the company at large, in order for the company to be able to apply risk reduction measures at all times (even if a key decision-maker is out sick or leaves the company).

How often should you update your policy?

At the very least, you should revisit your FX risk management plans once a year. But it might not be a bad idea to reassess more frequently, particularly if your business undergoes changes that could impact its foreign exchange risk.

The following changes would be good opportunities to readjust your FX risk management strategy:

  • An increase or decrease in exposure to particular overseas markets
  • Exposure to new overseas markets or currencies
  • Changes in the outlook for relevant currency markets.

How to get started

If you aren’t sure how to create or develop a risk management policy, we encourage you to discuss this with a foreign exchange specialist. A knowledgeable specialist can assess your FX risk, discuss your options, and help you to formulate the risk management policy that your organization needs for its specific risk profile.

For over 25 years, Xe has been a knowledgeable authority in the global currency markets. They understand foreign exchange risk, they help over 13,000 businesses each year with their foreign exchange and risk management needs.

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 multibillion-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

 

 

 

 

Source

An Introduction to Forwards, Futures and Options | Part 1

03-06-2020 | by Aastha Tomar

Our financial world has now gone through enough crisis. Some learnt from previous crisis and were braced for the next while some were still in their learning phase. The current crisis took everyone by alteration because this time it was not the financial sector which was responsible for the ordain. The fluctuations seen in equity, bond, commodity and currency markets may have become Achilles heels for Corporate Treasurers in current times.

The incumbent state of affairs was such that Corporates had to protect their bottom line while trying to stay afloat. The entire cash flow projections would have gone for a flip for those who didn’t hedge their foreign currency exposure. One way that would have taken a part of vexation away from corporate treasurers due to currency fluctuation is hedging. It would have attenuated the impact of currency fluctuation on investments, borrowings, assets etc .

Let us have a look at the most used and basic methods of hedging in this article :

Forwards

So what are forwards? In a simple language its a hedge product between two parties which freezes your cash flow for a future date. That ways whatever the market situation be on the maturity date of the hedge, your cash flows are locked and predetermined. Whether you are an exporter who can know the exact value of future payments or an importer who can anticipate the exact costs of products; a forward will hedge the risk of currency fluctuation for both.

Features of Forwards :

  1. Specifies the amount, date and rate for a future currency exchange
  2. Parties involved are banks and businesses with foreign currency exposure
  3. They are over the counter products
  4. They can be customized
  5. They need two parties, one buyer other a seller
  6. There is no upfront payment
  7. Determining a currency forward rate depends on interest rate differentials for the currency pair in question

Example :

Suppose you are an exporter based in the Netherlands and you want to sell Dollars in an years time. You know due to current euro zone, corona crisis and negative interest rate scenarios Euro may fluctuate sideways and therefore you want to lock in the price of USD today itself so that one year down the line you don’t have to worry about the fluctuating rates. What do you do ? You approach a bank informing them that you have to sell USD (buy EURUSD) for 1st June, 2021. After basic documentation bank enters with an forward agreement with you . Where in today’s spot rate , the currency premium for one year , the amount of hedge and the maturity rate will be mentioned .

 

Spot EURUSD : 1.08282 (1 EUR = 1.08282 USD )

1 year interest rate for EUR = -.07%

1 year interest rate for USD = 0.7%

 

So after one year based on interest rate parity :

 

EUR 1* ( 1+(-.0007))= USD 1.08282 *( 1+ .007)

0.9993 EUR = 1.090 USD

Therefore 1 EUR = 1.0911 USD

 

Therefore by entering a forward contract today you have fixed your EURUSD rate to 1.0911. Note that because the dollar has a higher interest rate than the EUR, it trades at a forward discount to the EUR.

 

Let us take a simple scenario analysis to make things clearer :

 

Here the forward deal amount is : EUR 1mn

Spot rate on the day of deal is : 1.08282

Forward rate fixed for the deal is : 1.0911

We can clearly see above that if the spot is same as the forward rate on the maturity date then there is no loss or gain, but if spot moves to 1.09250 then the corporate saves USD 1400 on the contrary if spot moves to 1.0900 the corporate wont be able to take advantage of the low price and will have to exercise the forward at 1.0911 as fixed earlier thus letting go of USD 1100.

So if forwards are so beneficial why do corporates still do not execute forwards for all of their foreign currency transactions :

  1. There is some documentation involved and corporates sometimes feel that its time taking and taxing
  2. At maturity date what so ever the actual spot rate be your forward will be executed at the fixed price , and some corporates feel that they may lose a chance to take advantage of better rates.
  3. Banks charge a small fee for entering the transactions which corporates want to save.
  4. Corporates feel the currency wont fluctuate much and hence don’t want to get into forward transaction.

Whatever the reasons be but the main business of corporates is not to use their energies in managing their fx risk but to increase profits by their mainline business hence its always advised for corporates to hedge their fx risk as much as possible to increase efficiency and prevent themselves from unseen shocks.

In our next post in this series we will see a second type of hedge … to be continued. Till then keep learning and be safe .

 

Aastha Tomar

FX & Derivatives | Debt Capital Markets | MBA Finance
Electrical Engineer | Sustainability

Meet our Experts – Interview Wim Kok

02-06-2020 | Wim Kok | treasuryXL

This week you will meet Wim Kok, a Trade Finance Specialist with decades of experience.

Wim started his financial advisory company recently after a long career in the banking industry (> 40 years). During his banking career his interest and focus was always connected to the commodity & trade finance industry both in sales and product innovation. Activities in various senior roles, including relationship management, head of department, change management and start up business (internationally).

Nowadays Wim is involved as independent advisory in supply chain management and digitalisation of the logistic industry. Building bridges, simplifying (trade) finance and logistics. Closing the gap between procurement and finance (treasury).

We asked him 11 questions, let’s go!

1. How did your treasury journey start?

I started working in Treasury (assistant treasurer) during the late 70 ties i.e. my 1st job was with Continental Grain  a New York based grain trading company with a strong foothold in Europe.

The Rotterdam Harbour, at that time, was the physical entry point for US grain coming to Europe.

I worked with 3 merchant banks (Slavenburg, Bank Mees & Hope & Albert de Bary) pooling and netting bank accounts (manually) to optimise currency and debit/credit interest positions for the Rotterdam company.

2.  What do you like about working in Treasury?

I see the treasury operations as a pivotal function within an organisation meaning that you have to know the cash generating mechanics of the company inside out. Seamless use and coordination of cash contributes to a seamless treasury function and an added value for the company.

3,  What is your Treasury Expertise?

I started my career in the late 70ties as assistant treasurer with an American global grain trading company in the Netherlands – My main task was to streamline and optimise the money flows in 8 different main currencies between 3 banks. This was the early start of the cash management development. Later on I moved into the trade and commodity structured finance direction.

4.  Do you have examples of risk mitigation, creation of opportunities and/or cost savings?

Very simple netting and pooling arrangements (interest risks). Discounting receivables, Bills of Exchange, Documentary L/C’s or insurance arrangements, making use of swaps and FX derivatives (currency risks) etc. on the payable side – supplier finance structures making use of the rating of the corporates.

5.  What has been your best experience in your treasury career until today?

That’s difficult to mention as my treasurer career was rather short, but I have seen the position and function grow over the years bridging the silo’s within a company (especially within the bigger corporates).

6.  What has been your biggest challenge in treasury?

At my time with Continental Grain is was the perception of the people. Hugh silo’s between booking /audit and sales / marketing we started to change the perception and managed to bridge the different worlds of finance and commerce by showing that a good treasury function earned additional income.

7.  What’s the most important lesson that you’ve learned as a treasurer?

My most important lesson learnt (and that seems a bit odd having worked within banks for almost 40 years) is: as a larger corporate always make sure you keep your independence in other words select more providers to support you.

8.  How have you seen the role of Corporate Treasury evolve over the years?

Very much in such way that in the bigger Corporates you see nowadays a lot of inhouse banks and for mid & large corporates a treasury function is more or less the standard.

9.  The coronavirus is undoubtedly an unprecedented crisis. In general, can you elaborate on the impact this virus has on treasury from your perspective?

In this respect I would like to refer to the article I recently wrote for TreasuryXL: ”How to simplify procurement and finance in the supply chain” – I think a lot of companies will have to reconsider their current (disrupted) supply chains and financial systems. Companies going into 2021 will have to adopt to the fast changing pace in any discipline or a combination be it digitalisation, IoT, Blockchain, AI, robotics or the Cloud

10.  What developments do you expect in corporate treasury in the near and further future?

Definitely transparency, efficiency and speed will improve dramatically due to interconnectivity of systems and transactions, data protection (and use) and cybersecurity will become a more important factor.

11.  What is your best advice for businesses without a Treasurer?

Try one because a good treasurer will always earn (at least) himself back for the company.

 

Wim Kok

International Business Consultant

Trade Finance Specialist

 

 

 


Does your business need support in Treasury or a Treasury QuickScan?

We have treasurers available, go to Rent a Treasurer for all information.



Start your International Treasury Management and Corporate Finance course in September 2020

29-5-2020 | by Kendra Keydeniers | Francois De Witte | ATEL

The treasurer is the custodian of the company’s daily liquidity. He manages, anticipates and secures cash flows by ensuring that financial needs are covered.

This cursus will give the ability to assist directly and practically the treasurer of large corporates or to take over the treasury responsibilities in a SME.

The various modules will allow acquiring an in-depth knowledge of the various areas of the “Corporate Treasure” profession.

Registration

This course will start late September 2020. It includes 13 training modules and 5 intermediary exams. It is necessary to complete this form before your official registration. Registration will be closed early September 2020.

Objectives

At the end of this programme, the participant will able to:

  • assist directly and practically the treasurer of large corporates
  • take over treasury responsibilities in a SME.

The various modules will allow to acquire an in-depth knowledge of the various areas of the “Corporate Treasurer” profession.

Programme

Module 0: Introduction to Treasury Management
Speaker: Benjamin Defays / Treasury Manager

  • Corporate Treasurer’s responsibilities
  • Cash management (bank account opening, closing, KYC, Cash pooling, Payments and bank connectivity)
  • Liquidity management (importance of working capital management,
  • Risk management (foreign exchange, fraud, credit risk)
  • Trade finance (general context, intro to bank guarantees and letters of credit)

Module 1: Financial Maths (Focus on treasury & corporate finance)
Speaker: Hugues Pirotte / Professor of Finance at Solvay Brussels School

  • Focus on treasury & corporate finance
  • Time Value of Money
  • Vocabulary
  • Compounding intervals
  • Discount and annuity factors

Module 2: Advanced Excel workshop for treasurers (Dedicated to treasury)
Speaker: Hugues Pirotte / Professor of Finance at Solvay Brussels School

Module 3: Corporate Finance
Speaker: Mikael Pereira / Associate, Finance

  • Valuations
    • M&A’s
    • Portfolios
  • Corporate Financing
  • Corporate Investments

Module 4: Cash Management (domestic and international)
Speaker François De Witte / Consultant

  • Payments (Process, Tools)
  • Liquidity Management
  • Cash-Flow Forecasting
  • In-House Banking
  • Banking Relationship

Module 5: Trade Finance
Speaker: Benjamin Defays / Treasury Manager

  • General contact, cultural aspects
  • Why trade finance in treasury
  • Bank Guarantees, Burgschafts, Surety Bonds, Letters of Credit, Cash against Documents
  • Alterative security instruments
  • Disruptive technologies

Module 6: Credit Control
Speaker: Anca Vasiliu / Counterparty Risk Manager

  • Concepts & Practices/Types of Credit Risks
  • Understanding Financial Statements and Ratios
  • Credit Scoring/Ratings – S&P, Bloomberg models
  • Collecting overdue receivables – setting priorities
  • Strategies dealing with overdue invoices
  • Debt collection services development

Module 7: Pension / Insurance 

  • General introduction on insurances and pensions
  • Typology of insurances
  • Risk management via insurances
  • Saving via insurances

Module 8: Compliance

  • KYC, GDPR, EMIR, Bale III
  • International sanctions and their impact on transactions & overall business activities
  • Anticorruption (FCPA, UK Bribery Act)
  • EU competition law compliance
  • INCOTERMS
  • Drafting a contract (main considerations)

Module 9: Risk Management
Speaker: Patrick Verspecht / Group Treasurer

  • FX, Interests
  • Counterparties
  • Others (Reputation, etc…)

Module 10: Regulations / Accounting
Speaker: Quentin Bodart / Senior Finance Engineer

  • Emir, Mifid 2, Basle II and III,
  • Dodd Frank, GDPR, Fatca, Section 385…

Module 11: Treasury Accounting
Speaker: Quentin Bodart / Senior Finance Engineer

  • Accounting for Derivatives
  • Hedge Accounting, IFRS9 (all from a treasury side)

Module 12: Technologies
Speaker: Patrick Verspecht / Group Treasurer

  • New Technologies
    • Blockchain, Crypto-currencies, Smart Contracts
  • Treasury Console (Bloomberg, Thomson Reuters)
  • TMS, Fintechs

Module 13: Cyber Fraud

  • Why Cyber fraud needs to be considered as a major risk
  • Identify the consequences of a cyberattack
  • Main fraud schemes
  • How to protect against fraud

Some homework might be proposed for some modules, there will be continuous control in the form of intermediary exams (under the form of QCM) and a final exam will be sanctioned by an attestation delivered by ATEL (The Luxembourg Association of Corporate Treasurers).

There might also be one or two “extra-activity”, such as a visit in a bank trading room or/and a special guest speaker addressing the cursus participants on a specific subject (still to be defined, optional events).

Target Audience

Anyone willing to acquire an in-depth knowledge in corporate treasury and wishing to exercise this knowledge in practice.

Prerequisites

  • Basic background in finance or accounting
  • For the Advanced Excel workshop, a preliminary (good) knowledge in Excel is required

Course Material

The course material can be downloaded free of charge via your portal the day before the start of the course (download the Client Portal User’s Guide here).

Certificate

At the end of the programme, the participants will receive a “Certificate of Attendance” delivered by the House of Training, and an attestation of “Exam Success Pass” delivered by ATEL.

In order to get certified, an 80% rate of attendance and a 60% average score on the examinations are required.

The participants will also receive a one-year free membership to ATEL (www.atel.lu) giving a number of advantages.

Register here

 

 

 

 

 

 

Live Demo: Ready for fraud prevention? – TIS shows you how!

| 29-05-2020 | TIS |

 

“Due to unforeseen circumstances this live demo session had to be cancelled. We will inform you once registration for the next session is open”.

 

Live Demo: Ready for fraud prevention? – TIS shows you how!

Friday June 5, 2020 from 2.00 pm to 2.30 pm CEST | 30-minute demo |

See different fraud scenarios in the TIS fraud case study and learn how TIS can help you preventing such cases. They will present different TIS functionalities and will take your high level questions at the end of the session.

  • Free of charge and no further obligations
  • No need for any demo account setup on your system
  • They will show directly how it works
  • On every Friday at 14:00 CET

Date, time and registration

Date: 5 June, 2020

Start: 2:00-2:30 PM CEST