Currency Volatility Is A Catalyst for Response by Treasury

15-12-2021 | treasuryXL | Kyriba | LinkedIn |

The Q2 2021 Kyriba Currency Impact Report showed a strong tailwind for many US corporates driven in large part by the strengthening of two main trading currencies for many US corporates, EUR and GBP.

Both currencies strengthened steadily through Q2 2021, but currencies have since retreated through Q3 2021, setting up a return of relatively strong headwinds for the Q3 earnings season.

Euro-US Dollar Rate
British Pound-US Dollar Rate

As we look forward to Q3 and Q4 currency impacts, it is very likely we will see increased levels of negative currency impacts for North American and European corporates as a result of continued business activity expansion combined with the return of a stronger USD and general market uncertainty. The recent impact of the newest COVID variant, Omicron, has also added a new level of uncertainty-driven volatility and questions about how businesses and central banks will respond.

Beyond the general level of market uncertainty there are a few other economic and operational challenges that are adding to the complexity of managing currency risk and liquidity.  With inflationary conditions starting to take hold in the US and other parts of the world, Treasurers and CFOs are having to contend with increasing supply chain costs. In addition, the supply chain disruptions are increasing the uncertainty of business operations. Many treasury teams are far less confident in their long-term cash flow forecasts which has many reconsidering their hedging and liquidity needs.

How are Corporate Risk Managers responding to the currency markets and supply chain disruptions? 

Treasury teams are faced with a complex set of variables in the current market environment. Their long-term cash flow forecasts are less and less reliable due to uncertainty related to supply chain disruptions. The disruptions are impacting both the supply side and the revenue side of the forecasts. There is increased uncertainty around both the value and timing of supply chain cash out flows. On the revenue side, there is also uncertainty around the value and timing of future inflows as manufacturers are having a hard time getting products on the shelves. In addition, the currency markets are adding to the complexity as the USD is strengthening or at least holding strong against a broad basket of currencies.

As a result, many treasury teams are re-focusing on the things they can control. Daily and even intra-day cash position monitoring is the norm now and combining that with an increased focus on FX hedging for working capital positions on the balance sheet are critical best practices to ensure treasury teams have the right amount of cash in the proper currency at the right time to cover vendor and supplier payments and ensure they maintain a strong liquidity position as they ride out the supply chain storm.

Another challenge FX risk managers are having to contend with is the by-product of improper posting of multi-currency transactions within their ERP system(s). When volatile currency markets are creating significant directional moves in various currency pairs, it often uncovers multi-currency accounting posting mistakes as well as missed exposures. This missed exposures and improper accounting postings can results in very surprising results that often create significant FX losses. The most frustrating aspect of these types of FX impacts is that they are entirely self-inflicted.  With proper Exposure Data Integrity Analytics and robust and dynamic exposure capture processes, these self-inflicted currency impacts can be anticipated and avoided.

Ultimately, Treasury teams that can monitor and manage their liquidity and working capital FX exposure in a single integrated platform have a distinct advantage in the current market.

 

Question treasuryXL Panel #4 | When do I pay an FX surcharge to my payment service provider?

14-12-2021 | treasuryXL | EcomStream | LinkedIn |

treasuryXL is the community platform for all your relevant treasury questions.

We received the following question from one of our followers… Read more

2021 Treasury Technology Analyst Report

13-12-2021 | treasuryXL | Gtreasury | LinkedIn |

The 2021 Treasury Technology Analyst Report is the definitive guide to today’s technology for Treasury & Risk Management, Treasury Aggregation, and Supply Chain Finance and Cash Conversion. Request your copy to learn more about these technologies and evaluate how GTreasury stacks up for treasury and risk management.

2021 Treasury Technology Analyst Report

A digital treasury technology evolution is a big undertaking. With so many types of solutions to choose from, it’s hard to know where to start. We recommend you start with this report – The 2021 Treasury Technology Analyst report. It will help you understand the benefits and selection criteria to consider for three types of valuable treasury technology solutions: Treasury and Risk Management Systems (TRMS); Treasury Aggregation Solutions; and Supply Chain Finance and Cash Conversion.

Topics covered in this 64-page report include:

  • The shift to emerging technologies
  • The value of API connectivity
  • The power and value of a networked technology ecosystem
  • Principles of treasury technology selection and implementation
  • Definitions, Challenges/Solutions, Selection Criteria, and the Future of each of the three types of technology.

Request your copy to learn more about these technologies and evaluate how GTreasury stacks up among treasury and risk management platforms.

 

Complete the Form to Get Your Complimentary Copy Now!

 

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


Refinitiv case study | How LG Electronics reduces operational risk across its FX trading workflow

06-12-2021 | treasuryXL | Refinitiv | LinkedIn |

LG Electronics is a global leader and technology innovator in consumer electronics, mobile communications and home appliances. Following an analysis of the market, LG decided to implement a trading and confirmation solution in order to improve its foreign exchange processes. Read the case study to find out more.

LG Electronics is a global leader and technology innovator in consumer electronics, mobile communications and home appliances, employing 87,000 people working in 113 locations around the world. With 2013 global sales of US$53.1 billion, LG comprises five business units.

The company’s previous foreign exchange had several inefficiencies and risk of manual errors, and was difficult to audit.  Too much time was spent on simple and mundane processing rather than value-added functions. The task for LG was therefore to find a solution that would allow the company to solve these inefficiencies and allow its staff to focus on other areas of the job.

As a solution, LG decided to implement a trading and confirmation solution in order to improve its foreign exchange processes. The system ensures that the best price will be available and LG can then execute on the platform electronically. With this innovative technology, LG has been able to really reduce its operational risk across their FX trading workflow.

 

“We now have the ability for users in our various Asia entities to create, modify and approve FX spot and forward orders electronically,” says Calvin Lee, Manager, Asia Pacific Treasury Centre at LG. “The solution will then electronically consolidate orders for our Regional Treasury Centre to control and feed approved orders to our relationship banks to obtain an electronic ‘multi-bank quote’”.

 

The new platform LG has implemented has greatly increased the efficiency of the company’s FX process while at the same reducing the risk the group was exposed to. On top of these advantages, LG has benefited from much-improved control as a result of implementing the solution.

Key benefits

  • Productivity gains
  • Process efficiencies
  • Foreign exchange gain(s)
  • Risk removed/mitigated
  • Increased control

 

 

 

Does Your Business Need Protection from FX Uncertainty?

| 02-12-2021 | Xe | treasuryXL | LinkedIn |

Don’t have a bank account? Want to have cash on you? In those cases, cash pickup could be the money transfer method for you.

One of the most interesting aspects of what the XE Business Solutions team does is having relationships across a broad range of industries. It helps our team curate unique insights into the various pressures and financial models being used by all the businesses we work with. The relationships our foreign exchange sales consultants build fine-tune their understanding of regional business sentiment and common international best practices.

There are many viewpoints on how to treat fast-moving FX rates. Some simply hope that the market will self-correct over time. Others make best-effort forecasts to try to understand all possible currency value directions of currency prices. From our vantage point, we see that businesses which are exposed to significant risks are more likely to achieve their objectives by employing a hedging program.

Foreign Exchange Volatility is a Universal Business Challenge

Big brands are just as susceptible to market movements as any other business segment. Currency volatility can impact profit margins if not managed correctly. Earnings reports are replete with warnings to shareholders pertaining to the value of assets and cash flows being affected by unmanaged or unexpected shifts in values of currency.

Looking deeper into hedging behaviours, enterprise-level businesses have a tendency to employ rich hedging programs and while it is by no means necessary to emulate their level of complexity; certainly the point regarding ‘best practices’ is clear.

Here are some insights on how the ‘big guys’ see ForEx risks across the globe as a result of their survey of corporations (Deloitte 2016 Global FX Survey and IMP Exchange Rate Risk Measurement and Management working paper: Issues and Approaches for Firms):

The top three reported ‘Primary hedging objectives’ were defined as:

  1. Reducing income statement volatility

  2.  Protecting cash flows

  3.  Protecting consolidated earnings

In terms of strategy, the breakdown of risk management strategies is as follows:

  • 8% of those surveyed employ a static or annual hedging programme (buying once a year)

  • 31% use a rolling hedge but a flat amount (buying monthly, quarterly etc)

  • 28% actively hedge using a rolling hedge strategy increasing over time to seek to average rates

  • 33% use ad hoc or hedging by situation

The survey found that global corporate hedging strategies consist of these approaches:

  • Hedging using a financial instrument like a forward contract or option – 89%

  • Naturally hedging through balancing buying and selling in the same currency (some or all of the exposure) – 58%

  • Passing costs to suppliers or customers – 28%

  • No FX risk management practices at all – 2%

These breakdowns further:

  • Using a FX forward or Non-deliverable forward – 92%

  • Using FX Options – 30%

  • Using specifically FX Option collars – 15%

It is always interesting to get a look into the strategies employed by others and particularly the way that large, professional companies approach managing a key part of their risk program.

The key takeaway is that almost all of the companies Deloitte surveyed are hedging using some kind of financial tool specifically designed to provide consistency and protect cash flows.

Probably a much higher percentage than many would think are using Options products and rolling hedges over on a regular basis as part of a specific policy that guides them in virtually any market condition. Some real food for thought there….

Currency Market Analysis

Here is today’s market recap:

GBPEUR – The Pound maintained its position yesterday and this morning against the Euro as many traders await details on what steps Members of Parliament will take when it opens next week. Labour has indicated they will seek and emergency debate on Brexit next week but no information regarding a no-confidence vote is yet available.

GBPUSD – The pound is expected to come under pressure in general as the suspension of parliament is seen as increasing the chances of a no-deal Brexit. With this in mind, it appears likely that we could test and break the 1.2060/1.2015 level downwards, which likely will open up losses against the Dollar of some significant ground.

EURUSD – While the trading calm remains in the pair, there is a chance hard economic data will begin to outweigh hard sentiment from the ECB. Germany reported a decline of 2.2% in Retail Sales in July (on top of a downward revision). Consumption is largely propping up the German economy and this is slowing as well. A potential risk for euro weakness exists.

Please contact us for more info about your international payments or log in.

Click here to register and save now.

 

Please Note: The information, materials, accompanying literature and documentation available on our internet site is for information purposes only and is not intended as a solicitation for funds or a recommendation to trade. XE, its officers, employees and representatives accept no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the above information.

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How does BRITA GmbH use Nomentia Payments in Germany?

| 01-12-2021 | treasuryXL | Nomentia | LinkedIn |

BRITA GmbH, a German water filter manufacturer with total sales of 617 million euros in the business year 2020 and 2,205 employees worldwide at the end of 2020, is the market leader in drinking water optimization and individualization. The company is represented by 30 national and international subsidiaries and branches as well as shareholdings. Brita has manufacturing facilities in Germany, Italy, China and the United Kingdom.

The challenge

Brita has a complex business. The company’s products are distributed globally in over 70 countries on all 4 continents.

Brita’s treasury department was facing the following challenges:

 

– The used multibank payment tool was discontinued.

– Lack of a system that is independent of banks.

– Lack of centralization of treasury and cash management.

 

Currently, cash management is not centralized in the company. But there are group requirements setting a minimum standard for banking systems. However, rolling out the project in Germany was the first step to evaluate the possible adoption also by the subsidiaries.

To roll out Nomentia worldwide and achieve the goal of having one system for all payment transactions, first, Brita needs to take a few vital strategic moves, such as ensuring that all subsidiaries are using a group bank and the same ERP system, as well as setting up connectivity with all the group banks to be able to handle also those payment types that cannot go through Electronic Banking Internet Communication (EBICS).

The solution

Instead of working with as many as 7 different banks just within Germany to process payments, Brita chose to use Nomentia, as a single tool that is independent of banks.

Currently, Brita is connected to two major global banks and a few local banks through EBICS. They are currently discovering the possibility to add more connections, like a host-to-host connection to a major global bank.

In the beginning, Brita’s treasury and IT departments had to work closely with Nomentia to set up the project that required a lot of communication from both parties.

 

“Once our IT understood that Nomentia can do magic by connecting to our ERP system, retrieve a file from the bank and send it to our ERP in the right format, it was easy to get their buy-in. Our team had a lot of experience with long ERP projects and they were impressed with Nomentia’s capabilities” – said Doreen Lenk, Manager Group Treasury & Risk Management.

 

Nomentia’s Payments solution is currently used by almost all Brita’s German branches and they are currently in the middle of rolling out the solution in Italy. In case that’s a success, they may look at starting to use Nomentia in other countries as well.

The benefits

Rolling out a new product for treasury management can often be a challenge. It requires strategic planning from the department, cooperation with IT, and working closely with the solution provider. In addition, aligning the group in different countries also requires a lot of paperwork as well as training.

Brita has realized three key benefits of working with Nomentia. These benefits can be even further realized after further adoption of the solution.

1. One system for all in Germany for better processes and decreasing the number of errors

 

The biggest benefit has been that German branches can use one tool to communicate with all German banks. Without Nomentia, Brita would be working with several systems from several banks. Now all transactions go through Nomentia which makes the process less error-prone.

2. Automated processes

 

The processes have been automated for the German branches and this saves a lot of time for the accountants. As Nomentia is also integrated with SAP, they can see all the invoices from SAP, too.

3. Avoid fraud

 

With having just one system in place, it’s easier to have the highest level of transparency of the transactions and access rights.

 

 

CONTACT US 

 

 

Who is process owner in the search for a treasurer?

| 30-11-2021 | treasuryXL | Pieter de Kiewit | LinkedIn | Over the last years, Treasurer Search found hundreds of treasurers. Our client contact persons are HR managers & internal recruiters, the CFO, Group Treasurer and sometimes even procurement. There is no standard first contact. Working with more than one often works best. This is what […]

Read more

Figuring Out your Company’s FX Requirements

| 25-11-2021| treasuryXL | XE | LinkedIn

There is no crystal ball that can accurately tell you the future of where a currency will trade in the short, medium or long-term.

 

When looking to partner with an FX provider, your first priority should be to evaluate the payments your business has made previously in order to get a better idea of the FX products and services that will best fit your business’ needs. And, when selecting a provider, make sure they understand your industry and the jurisdictions you are making payments to.

1. Frequency

How often are you making (or will you make) international payments? Making overseas payments costs more per transaction. The more payments you make, the more critical it is to get the cost per transaction right.

2. Amounts

The amounts you transfer affects the overall cost. Smaller amounts will have a higher margin added, therefore it’s worth determining whether you can bundle your payments to sharpen the margin you attract.

3. Timing

With exchange rates constantly fluctuating, the timing of your payments will have an impact on your overall profitability. If you do business in areas where currency valuations are highly volatile, an FX provider which can effectively advise you about the risks and opportunities of short or long-term foreign exchange contracts is ideal.

4. Industry

Each industry is different when it comes to the three factors above. Therefore, selecting a provider that understands your industry can make a big difference, as they’ll often be able to suggest the best foreign exchange service offering for your type of business.

Your business is as unique as you are. Don’t settle for generic money transfer services which treat your business as a number on a spreadsheet.

5. Geography

Finally, when selecting an FX provider, make sure they understand any regional nuances particular to the jurisdictions you are sending your money to – this will ensure your payments go through smoothly, and in a timely manner.

Taking the time to understand these five factors is the first step in taking control of your business’s FX requirements and will put you in good stead when selecting the right FX provider for your business.

Ready to learn more?

Download our essential FX Guide for Aussie and Kiwi businesses.


The hidden secret behind the different types of foreign exchange exposure

23-11-2021 | treasuryXL | Kantox | LinkedIn

Fresh from leaving the famous Genesis rock band that he helped found, songwriter and musician Peter Gabriel came out with an innovative album called Exposure, where his fascination with electronics and new recording techniques was openly on display. In the eponymous song, he kept on droning the E-word over and over:

Exposure
Exposure
Exposure
Exposure
Exposure

 

At Kantox we share this almost obsessive-like concern. But we care about FX exposure, a very specific kind of exposure. And so do most corporate treasurers: according to the last Kantox & TMI FX Survey, exposure-related concerns are seen by as many as 66% of participants as the most important FX challenge faced by companies.

In this blog we seek to determine the three types of foreign exchange exposure:

  1. Forecasts of revenues and expenditures
  2. Firm commitments for sales/purchase orders
  3. Accounts receivable/payable

 

Understanding the different types of foreign exchange exposure

FX exposure, in a nutshell, is the degree to which a company is affected by changes in exchange rates. To arrive at a precise definition of the three types of foreign exchange exposure, we need to understand the goals set by management in terms of its FX risk management policy.

If the goal is to remove accounting FX gains and losses, then accounts receivable and payable are the key pieces of exposure. If, however, management seeks to protect company cash flows from currency fluctuations, then the relevant type of exposure results from a set of company-specific business parameters.

These parameters include the firm’s sensitivity to FX (as measured by its profit margins and the weight of foreign currencies in the business), its degree of forecasting accuracy, the forward premium/discount of the currencies in which it operates, and several others. But the decisive element to consider is the firm’s pricing parameters.

Steady or dynamic prices? Forecasts and firm commitments

When determining the types of FX exposure, pricing dynamics play a key role. Does the company adjust selling prices after a campaign or budget period is over? Does it attempt to keep prices steady for a set of periods ahead? Or does it price dynamically with an FX rate? (*). Most firms implement one, or a combination, of the following pricing strategies:

Steady prices for individual campaigns/budgets. Some businesses keep steady prices for an entire campaign or budget and adjust them as the following campaign or budget period unfolds, thus incorporating FX fluctuations into the new prices.

⇒ TYPE OF FX EXPOSURE: forecasted sales and expenditures for each individual campaign or budget.

Steady prices for a set of campaigns/budgets. Competitive pressures may lead firms to keep steady prices across a set of campaigns or budgets without adjusting them, even in the face of sharp adverse currency fluctuations.

⇒TYPE OF FX EXPOSURE: rolling forecasts for sales and expenditures across a set of campaigns or budgets.

Dynamic prices. For firms that operate in a dynamic pricing environment, pricing is itself a natural hedging mechanism. FX risk arises from the time lapse between the moment a transaction is contracted and the moment it is finally settled in cash.

⇒TYPE OF FX EXPOSURE: firm commitments for sale and purchase orders

FX management and the types of foreign exchange exposure

This brief overview of the three types of foreign exchange exposure provides the starting point for a well-structured FX management process. Exposure items must be properly collected and processed before hedging programs can be implemented. Risk managers must know with precision how to retrieve, from disparate company systems, the information relating to each type of exposure.

 

Whereas most Treasury Management Systems provide the necessary information in terms of accounts payable/receivable, data about the two other forms of FX exposure —forecasts and firm commitments— are usually scattered between a host of company systems (ERP, CRM, specific software tools) and spreadsheets. This leads to a number of practical problems whose importance is usually underestimated:

  • Can the relevant pieces of exposure be retrieved in a timely manner?
  • Is the information complete and granular enough?
  • Who validates it, and through which processes?

Quite logically, the level of complexity increases in situations where different pricing parameters coexist within the enterprise, many currency pairs are in use, and both accounting and cash-flow related exposures are treated.

Technology to the rescue

The good news for treasurers is that Currency Management Automation allows them to efficiently collect and process the firm’s FX exposure with procedures that eliminate human error and other operational risks. The solution uses APIs to run the end-to-end FX workflow, allowing exposure data to seamlessly flow between different systems —ERP, TMS and others— without any need for spreadsheets.

Treasurers set up their own business rules according to the different types of foreign exchange exposure they need to collect and process, and let technology remove the risks and costs associated with manually executed tasks. With an added bonus: they can remove concerns about the accuracy of their budgeted FX exposure, giving them more time to improve forecasts.

(*) Note that more than one type of price dynamics can exist within the same company — think of heavy machines, spare parts, and services in the industrial engineering space, each with its different pricing criteria. In this case, the type of FX exposure will be different for each business line.