What will be the Treasury Trend of 2023?

30-11-2022 | treasuryXL LinkedIn |

As 2023 is approaching, we explored what Treasurers are particularly looking forward to in treasury for next year. What will be the Treasury Trend of 2023? Are treasurers curious to know what is going to happen in the area of Market and FX Risk Management, or just what the developments are going to be in e-commerce related to Treasury? Or will the understanding of APIs in Treasury be the story of 2023, or the role of Treasury within companies? We sought it out!

We thank Huub Wevers and Kim Vercoulen for sharing their views with us.

Poll results

As 2023 is approaching, we explored what treasurers are particularly looking forward to in treasury for next year. Are treasurers curious to know what is going to happen in the area of Market and FX Risk Management, or just what the developments are going to be in Ecommerce related to Treasury? Or will the understanding of APIs in Treasury be the story of 2023, or the role of Treasury within companies? We sought it out! This topic was also the subject of discussion during the last webinar together with Nomentia, you can find the recording here.

Question: What are you particularly interested in that will develop in 2023 in treasury?

treasury trends 2023

First observation

We see that Market and FX Risk Management stands out a little, and that there is less focus on trends in e-commerce and Treasury. What do those within treasuryXL say about this, and what are they looking forward to for next year?

View of treasuryXL experts

Huub Wevers (Nomentia)

Huub is especially interested in the developments in APIs for Treasury for in 2023.

“My personal interest is in the focus on APIs, which is good, as APIs offer new functionalities and convenience for treasurers”

With the current political and economic turmoil, it makes sense that market risk is back on the agenda. Interest rates are rising and emerging markets are becoming riskier. My personal interest is in the focus on APIs, which is good, as APIs offer new functionalities and convenience for treasurers. However, it is a jungle because everyone promises APIs, but few deliver on them, and the few that do make them have no standards.

We also see APIs that are ‘disguised’ file connections. This makes sense, because an API means linking two applications and this can be done through authentication, security and then exchange of a file. We see this a lot with Payment Service Providers. Getting reporting files for matching purposes, for example.

The webinar the other day was interesting because Niki and I represent two different areas of treasury that are important to Patrick, a very experienced treasurer, namely market risk and technology. Together with Pieter as moderator, it was fun to hear the different perspectives and experiences!


Kim Vercoulen (Treasurer Search)

Kim is especially interested in the developments of Market and FX Risk Management for in 2023.

” Important question for the treasurer will remain what to do about this.”

I chose for Market and FX Risk Management. I think especially with inflation and higher interest rates, this is going to have an impact on the treasurer’s work within the treasury department.

This is obviously all going to play through on companies’ costs, and pressure on selling prices will also increase. Important question for the treasurer will remain what to do about this.

How this will affect the treasury market compared to the current year remains to be seen. That is what we are going to witness at Treasurer Search.


Would you like to explain your own vote for this poll? Join the discussion in the comments. And above all, don’t forget to give your opinion on our latest poll question

Geen alternatieve tekst opgegeven voor deze afbeelding

Ask the treasuryXL expert #5 What is Factoring in Trade Finance?

03-11-2022 | treasuryXL | Wim KokLinkedIn |

treasuryXL is the community platform for everyone with a treasury question or answer! A common question asked by treasurers is what Factoring means in Trade Finance. In today’s article Ask the treasuryXL Expert, Wim Kok defines factoring in trade finance for us.

Factoring in Trade Finance

Question: “What is Factoring in Trade Finance?”


Answer provided by Wim

What is Factoring in Trade Finance?

Well, there is a pretty good definition included in the Standard Definitions for Techniques of Supply Chain Finance, prepared by the Global Supply Chain Finance Forum and published by the ICC in 2016. It is currently being updated, but the definition is still alright.

There they give the definition of factoring in trade finance as: Factoring is a form of Receivables Purchase, in which sellers of goods and services sell their receivables (represented by outstanding invoices) at a discount to a finance provider (commonly known as the ‘factor’). A key differentiator of Factoring is that typically the finance provider becomes responsible for managing the debtor portfolio and collecting the payment of the underlying receivables.

Would you add anything to this definition? 

There are a number of things I would add to this to explain the terminology and make it more clear:

  • The term “factoring” is sometimes used as an umbrella term for all forms of invoice financing, including confidential invoice discounting. Strictly speaking, “factoring” refers to both debt management and debt purchase.
  • In the UK, factoring is usually communicated to the debtor, as the collection procedures are carried out by the funding provider (the “factor”).
  • Non-public factoring is usually more popular than full factoring. In this case, the customer retains control over the collection of the receivable.
  • In some markets, disclosure is required by law. Some even require the debt to be formally acknowledged before purchase.
  • In the UK, the standard practice is for the factor to purchase all debt – known as “whole turnover” – even if not all debt is eligible for financing. This gives the factor leeway to absorb any dilution or non-payment of individual invoices. Banks also take secondary security in the form of an “all-asset debenture”. This is registered at Companies House and notifies other potential lenders that debts have been transferred.
  • A subtle but important point is that a debt assignment can serve two purposes: it can mean that the debt has been bought or that the debt has been taken as security for a loan.
  • Many Fintechs offer single invoice/selected invoice/selected debtor solutions, but these are inherently riskier than whole turnover solutions. Large bank providers are generally reluctant to follow suit.
  • Factoring can be done with or without recourse. Even arrangements without recourse include provisions allowing the factor to require the customer to buy back the invoice under certain conditions (e.g. contractual dispute).
  • Factoring can possibly be “wrapped” in credit insurance.
  • In the UK, major finance providers tend to operate an “availability model” in factoring rather than funding individual invoices. The “availability” changes in real time as new eligible debts are purchased (within agreed counterparty limits etc) and existing debts are settled, defaulted or become ineligible. The customer can then draw down to “availability” at any time. This is similar to a “borrowing base” approach, albeit with frequent increases and decreases within the day. This model, combined with the “whole turnover” mandate, provides the factor with a secure source of repayment even if some invoices remain unpaid.

I trust this will be helpful and give more insight into this subject.

Wim Kok



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How important is it for you that someone has a well-known Treasury degree?

31-10-2022 | treasuryXL LinkedIn |

The fifth edition in which we discuss the latest poll, is available for your reading. We show how treasurers voted to express their opinions on a current issue, and several of our treasury experts will talk about their perspectives.

We thank our experts Konstantin Khorev,  Arnoud Doornbos and François De Witte for sharing their valuable views on this topic in this edition.

How important is it for you that someone has a well-known Treasury degree?

There are plenty of education and training courses in treasury, with the aim of obtaining treasury certificates. We wanted to explore how important you think this is, in the job market or for other things. There was a very good participation in the poll, resulting in a record 113 votes. Thank you everyone for actively participating, and join us in voting for the poll that is currently live and let’s try break the record votes right away!

Question: How important is it for you that someone has a well-known Treasury degree? On the job market or for other things?

Geen alternatieve tekst opgegeven voor deze afbeelding

How do treasures think of a treasury degree?

We see a considerable spread of votes. A large proportion of treasurers value expertise more than a degree. On the other hand, a large proportion considers a treasury degree minimally of high importance. Some of our treasuryXL experts from different backgrounds explained their views on the subject.

View of treasuryXL experts

Konstantin Khorev

Konstantin voted for the option that a treasury degree is a guarantee of quality.

Geen alternatieve tekst opgegeven voor deze afbeelding

” Specific, treasury-focused education certainly makes sense.”

From the perspective of a recruitment manager who has conducted a number of interviews, I find that a standard academic programme does not focus enough on the topics relevant to the treasury function.

For example, I note that too many candidates for treasury positions find it difficult to understand or don’t know FX forward pricing (relationship between interest rate differential, spot and forward pricing), or don’t understand the difference/relationship between net income and cash flows, etc.

And, of course, these are only general topics; other topics – like cash pooling or hedge accounting are just not part of the regular curriculum. Therefore, specific, treasury-focused education certainly makes sense.


Arnoud Doornbos

Arnoud voted for the option that a treasury degree is just one of the key aspects.

Geen alternatieve tekst opgegeven voor deze afbeelding

” There are also elements that you can never learn from a book”

A treasury degree is a great start to a career in treasury. But after having interviewed many candidates in my life, I am also convinced that practice is also a very good learning opportunity. There are also elements that you can never learn from a book. You must have done that. But a treasury degree is a nice theoretical framework to start with.

In treasury you have to think in terms of cash flows and risks. In addition, you still need some understanding of financing, how to price it in relation to the risk that the bank runs on your company.

I don’t have a treasury degree myself, but I am completely self-made man. After 25 years in dealing rooms of banks and then 9 years as a treasury consultant, I think I have seen all facets of the profession.


François de Witte

François voted for the option that a treasury degree is a guarantee of quality.

Geen alternatieve tekst opgegeven voor deze afbeelding

” It is key to ensure that both the candidates and the current treasury staff keep their treasury knowledge updated”

Within Finance, Treasury is a fast-moving activity, which requires in addition to the soft skills a lot of technical skills and competencies. We are in the war for talent, and we experience more and more staff rotation. Hence it is key to ensure that both the candidates and the current treasury staff keep their treasury knowledge updated.

Several programs have been developed, the most well known being the ACT Certificate in Treasury Fundamentals. In the Netherlands NIVE also organizes the QCM (Qualified Cash manager) and QT (Qualified Treasurer) training. In Luxembourg, ATEL organizes with the House of Training the Certificate in International Treasury Management and Corporate Finance, with a Fundamentals version and an Advanced version.

Some treasury associations partnering with universities to provide treasury certification. In France, the AFTE has teamed up with the university of Paris Sorbonne, the university of Rennes and the University of Lille to develop a full master program in Treasury Management.

We also have in the Netherlands the Vrije Universiteit Amsterdam who organizes the postgraduate Executive Treasury Management & Corporate Finance program combining two finance disciplines which largely overlap and are inextricably connected: Treasury Management and Corporate Finance. It has now been running for more than 20 years.

Beside this we have a lot of other treasury trainings organized by organizations such as Van Groningen, Finsiders Academy, Orchard Finance, etc. However, they do not offer a certification.

In an ever more sophisticating environment, and in view of the increased regulations, it is for me key to look at certified trainings to build a solid background in a Treasury Management field. It enables to meet other talented treasurers and teachers. In addition, thanks to the certification, based upon an examination and/or end paper, you can get a additional quality label, which can be very useful in your career.

In this respect, I wish to share my personal experience in a completely different area. I am currently looking for Board Mandates and realized that there also a certification can be useful. Hence I have started the Guberna programme to become a Guberna Certified Director.

In the event that due to circumstances, you cannot follow certified trainings, you can also get a certification thanks to the Treasurer Test developed by treasuryXL


Would you like to explain your own vote for this poll? Join the discussion in the comments. And above all, don’t forget to give your opinion on our latest poll question

Geen alternatieve tekst opgegeven voor deze afbeelding

Discussion LinkedIn poll | What could happen if the Treasury sector were “metaversed”​?

We present for you already the 4th edition in which we discuss the latest poll results. We’ll demonstrate how treasurers voted to express their viewpoints on a current matter, and a treasury specialist will discuss his view.

We have invited  Ernie Humphrey to share their views on the current topic.

04-10-2022 | treasuryXL LinkedIn |

What could happen if the Treasury sector were “metaversed”​?

Corporate treasury in the metaverse; is that realistic in the near future? We wanted to know if this idea was in play among Treasurers. The poll did not get the highest number of responses with only 26 votes. Still, thanks to everyone who voted!

 

What do Treasurers thinks of the Metaverse?

Despite the relative lower number of votes, the votings gives an interesting picture. Half say they do not see Treasury happening in the metaverse, yet over a quarter say they are enthusiastic about the idea. One treasuryXL expert Ernie provided his opinion of the concept of Corporate Treasury in the Metaverse.

View of treasuryXL expert

Ernie Humphrey

Ernie voted for the option that he does not see this happening.

 

” Will I try to get treasury professionals to engage “in that world” as it makes sense? Absolutely!! “

 

Metaverse is just a “buzz phrase”. No one currently knows what it is.

Treasury professionals are notoriously slow to adopt new technology and concepts.

Yes, we are finally seeing some traction with RPA and AI, but what is the actual adoption rate?

I gave the first full virtual conference for Treasury professionals back in 2020 and it was clear that even though we were in the middle of COVID, treasury professionals were not buying a virtual experience that could be the same (or better) that a live event.

If they cannot accept a virtual conference, how should we expect them to do things like buy “digital assets”with corporate assets?

As another example, look at the use of cheques in the US, still nearly 50% of B2B payments. Enough said, the Metaverse and treasury are a long way off if ever.

Will I try to get treasury professionals to engage “in that world” as it makes sense? Absolutely!!

 


Would you like to explain your own vote for this poll? Or want to add anything? Join the discussion in the comments.

Ask the treasuryXL expert #4 What is RPA, and what are common use cases of RPA in Treasury?

06-09-2022 | treasuryXL | Philip Costa HibberdLinkedIn |

treasuryXL is the community platform for everyone with a treasury question or answer! treasuryXL expert Philip Costa Hibberd is often asked what RPA exactly entails and what some typical treasury use cases for RPA are. In today’s article Ask the treasuryXL Expert, Philip tells us all about RPA software and when it is happening in treasury.

RPA in treasury

Question: “What is RPA, and what are common use cases of RPA in Treasury?”


Answer provided by Philip

What is RPA (Robotic Process Automation)?

RPA stands for Robotic Process Automation and is a software that performs rules-based work, interacting with systems, websites and applications in the same way a human would. Think of Excel Macros on steroids. With RPA, you can program robots to do the repetitive tasks that nobody wants to do. Robots work 24/7, are fast, make no mistakes, and are very cost efffective

Sounds good… but does this mean that we”ll soon be out of a job? No. Quite the opposite.

Robots are great at performing repetitive, standardised and time-consuming tasks, but are not great at dealing independently with the uncertain and complex world in which treasurers operate. This is why bots and treasury professionals are such a great combination. Bots give us superpowers: they give us back the time we need to focus on the valuable activities that make the job interesting and at the same time they allow us to keep direct control over the repetitive (but often critical) processes we need to do (without actually having to do it ourselves).

What are common use cases of RPA in treasury?

Reporting: collecting information from different sources, calculating measures and KPIs, drafting the reports, distributing the reports (after getting confirmation that everything is ok).

Master data management: support with the creation, updating, deletion and cleansing of master data in different sources and systems. Synchronizing data across systems.

Cash Position: collecting bank statements/account balance information from different systems, consolidating information, saving and/or distributing the cash position information to the appropriate people and systems.

Payment processing: collecting and consolidating payment requests, handling predefined exceptions and validations, inputting/uploading payment batches before cut-off times, providing reports and feedback on each action.

Cash Flow Forecasting: collecting cash flow data from different systems and sources, sending automated reminders, consolidating the information, applying validations and checks, notifying exceptions, distributing the information.

Month end activities: sending notifications/reminders on deadlines and expected activities, collecting and distributing FX rates, consolidating information, performing automatic checks, limit checks, compiling and distributing month end reports to accounting / FP&A / etc.

User and access management: checking user roles and statuses in different systems, notification of accesses about to expire, creating accounts for joiners and disabling accounts of leavers.

Mark-to-market valuations: collecting deal confirmations from different sources, extracting information from different mediums (excel, PDF, emails), running the models, preparing and distributing the reports.

Covenant management: collecting the information from different sources, calculating the ratios, warning of (imminent) breaches, warning of risky trends, distributing reports.

Bank fee monitoring: gathering bank statements / CAMT.086 / Bank Services Billing (BSB)  from different systems, processing the information, generating and distributing reports, automatic disputing of fees based on predefined rules.

Chargeback / Credit card disputes: collecting pre and post approval information, filing the disputes, notifying users of responses and exceptions/follow up needed.

Automated testing regression testing of ERP/TMS/system updates, bank connectivity testing, end to end process testing, generating testing reports and evidence.

(Basic) Trading: computing of exposures, inputting  vanilla deals in trading platform (if within predefined limits – otherwise notify traders), deal execution according to trading policy, handling of post trade activities.

 

Thank you,

 

Phillip Costa Hibberd



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Discussion LinkedIn poll | The Dollar-Euro exchange rate reached parity for the first time in two decades

We analyze the results of the most recent treasuryXL poll on today’s corporate treasury concerns in this third edition of the newsletter. We’ll show you how treasurers voted to express their opinions on a current issue, and a few treasury experts will explain their positions.

We have invited Patrick Kunz, Harry Mills and Paul Stheeman to share their views on the current topic.

25-08-2022 | treasuryXL LinkedIn |

Is the trend in the dollar-euro exchange rate something to worry about for treasurers?

We talked about whether treasurers should be concerned about the present trend in the Dollar-Euro exchange rate in last month’s poll. 38 people participated in the poll, and the results are shown in the image below. Thank you to everyone who voted, and don’t forget to vote in the new poll this month!

 

First observation

The results indicate quite clearly that the Corporate Treasurer is, of course, very much aware of the current trend. The exchange rate remains volatile, as the euro has even currently fallen to a new two-decade low. A number of treasuryXL experts have expressed their views regarding the current trend and how it may or may not affect treasury activities.

Views of treasuryXL experts

Patrick Kunz

 

“The main reason for keeping an eye on it is so a treasurer can estimate what the impact of a falling Euro or stronger USD will be on the company’s financials.”

 

Patrick voted for the option to keep a close eye on the current trend

 

Keeping an eye on the Euro-Dollar rate is not necessarily to know what the current rate is. The main reason for keeping an eye on it is so a treasurer can estimate what the impact of a falling Euro or stronger USD will be on the company’s financials. Both in the field of FX hedging (not all companies hedge 100% of their exposure but have a rolling hedging policy) and higher hedge costs (forward points have increased due to larger interest rate differences with the US).

But also the sensitivity of the exchange rate on profits and sales is important. For example, if you sell in USD, you suddenly earn more in EUR and you probably sell more. On the other hand, if you buy in USD, it becomes more expensive while your EUR price is fixed. Is it perhaps cheaper to buy elsewhere? What is the impact on the cost price and total demand and turnover of the product? Do the prices need to be adjusted? All questions that the treasurer does not have to answer but that he can signal to his colleagues (CFO, Procurement, Sales etc.).

 

Harry Mills

 

“Currency risk aside, treasurers have other headaches to contend with when currencies exhibit high volatility and/or experience a large directional shift (trend) in value.”

 

Harry voted for the option to keep a close eye on the current trend

 

The euro’s descent from above $1.20 in mid-2021 to below parity with the dollar has been well covered in the financial media, and the impact on European importers is obvious: higher import costs, squeezed margins, and pressure on business performance. Currency risk aside, treasurers have other headaches to contend with when currencies exhibit high volatility and/or experience a large directional shift (trend) in value. Let me name a small sample of potential areas for attention

Hedge Maintenance and Funding Requirements

Managing the currency hedging position, in line with policy, requires maintenance – trading in derivatives such as forward contracts and options, which presents its own challenges when exchange rates change over time. Additionally, FX swaps are used to balance cash positions and manage liquidity: it’s typical for swaps to be deployed to rollover the settlement on a hedging trade, or to bring forward a delivery. A lower EUR/USD spot rate compared to the hedged rate could incur a funding requirement if the position is out of the money when rolling-over or extending (i.e., for a euro-buyer / dollar-seller).

Treasurers as internal Consultants

Treasurers will need to work with the risk team and other stakeholders to manage internal expectations and provide guidance into the business. Preparing commentary, analysis, and forecasts using proprietary research and that of appropriate external sources, such as banking and consulting partners, is a critical area in which treasurers can demonstrate additional value. Business leaders will be aware of the EUR/USD parity story from headlines, but taking advice and information from trusted internal resources could be invaluable.

Collateral and Margin Calls

For European importers, selling the euro to buy the dollar, a move below parity will likely mean their hedging position is in the money, but of course, future hedging trades may well be at less favourable rates. For those firms selling the dollar to buy the euro however, they may find that they are losing headroom on their trading lines and could face margin calls as the sustained fall in the euro erodes their position value. Regular stress-testing of position valuations should give ample forewarning of any calls for additional collateral, and frequent communication with liquidity providers should provide the opportunity to discuss trading terms and spreads, which are liable to be adjusted in times of high volatility.

Currency Options

EUR/USD volatility has risen to multiyear highs, meaning that option premiums are higher. Treasurers will need to manage the impact of higher hedging costs and ensure an appropriate balance of cost-efficiency and hedge effectiveness is achieved. Another way EUR/USD breaking below parity could be a concern for treasurers is regarding option payoffs, and especially for path-dependent trades such as knock in or knock out options. Exotic options and multi-leg “structured” products can return a vastly different outcome in the event of a large shift in the underlying spot rate. Care should be paid to model various scenarios for the impact on the hedging and liquidity position, and to offer guidance on the appropriateness of such transactions.

Paul Stheeman

 

“The recent movements in the EUR/USD may seem extreme at first glance, but historically they have in no way gone outside of trends or ranges we have seen before.”

 

Paul voted for the option that there is no need to be concerned

 

I think treasurers should not be over-worried about the current movement in EUR/USD exchange rate. Let me explain to you why.

Every company should have a sound FX policy. This policy should take into account the possibility of increased market volatility. Some companies believe that their balance sheet is strong enough to deal with fluctuations in exchange rates and therefore will not hedge much, if at all. Others will want to manage their risk by using futures contracts or options. These instruments allow CFOs and Treasurers to hedge at a comfortable level. The only ones who may have sleepless nights are those who have not implemented a coherent hedging policy. But under normal circumstances, any Treasurer will ensure that such a policy is in place and implemented.

Moreover, European importers are concerned about the strength of the USD and the weakness of the EUR. But the current volatility in the market is by no means extreme. Over the past seven years, we have seen prices move between 1.25 and 1.00. In the seven-year period between 2008 and 2015, we saw rates between almost 1.60 and 1.10 . In that period, the euro has fallen twice as much as it has in the past seven years. Or look at the volatility over a shorter period, during the financial crisis between 2008 and 2010, when we saw rates move dramatically in both directions over much shorter periods. The recent movements in the EUR/USD may seem extreme at first glance, but historically they have in no way gone outside of trends or ranges we have seen before.


Would you like to explain your own vote for this poll? Join the discussion in the comments. And above all, don’t forget to give your opinion on our latest question!

Ask the treasuryXL expert #3 How to prevent fraud caused by BEC for my treasury department?

17-8-2022 | treasuryXL | Zhanna IrgaliyevaLinkedIn |

treasuryXL is the community platform for everyone with a treasury question or answer! TreasuryXL expert Zhanna Irgaliyeva is more often asked what you can do about fraud caused by BEC. Today she will tell us a few tools to prevent BEC scams for your treasury department.

BEC fraud

Question: “How to prevent fraud caused by BEC for my treasury department?”


Answer provided by Zhanna

What are BEC scams?

BEC scams are everywhere and they never go away. A sort of email scam called a “business email compromise” (BEC) targets businesses with the intention of defrauding them. Compromise of business emails is a significant and spreading issue that affects businesses of all sizes and in every sector worldwide. Organizations have been exposed to potential losses in the billions of dollars due to BEC schemes.

What would you recommend to prevent fraud caused by BEC?

There are a few tools I recommend you to use to prevent BEC scams. First, it would be smart to rewrite the company’s policy and procedures to include internal controls to reduce fraud. You could verify new or updated beneficiary data not via email, but via a Main Agreement or Change Orde. Another option is separation of duties through the use of two-factor authentication.

Also, make sure to train your staff on the different types of BEC fraud and familiarize them with updated internal controls to mitigate the risk of fraud. Then, secure your email, and regularly update the required antivirus software. Daily reconciliation of company’s accounts would also be smart to do for early identification of BEC scams. Finally, always stay alert with everyday payment transactions as BEC scam can pop up just like that.

 

Zhanna Irgaliyeva

Reference: Association of Financial Professionals



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Ask the treasuryXL expert #2 How can I efficiently and cost-effectively get central bank approval/advice for cross-border flows in cash-strapped countries without delaying my business?

treasuryXL is the community platform for everyone with a treasury question or answer! Today, we discuss a question that treasuryXL expert Vasu Reddy often hears within his treasury network. The question relates to challenges for Treasury in Emerging Markets that most corporates continue to experience.

27-07-2022 | treasuryXL Vasu Reddy | LinkedIn |

Question: “How can I efficiently and cost-effectively get central bank approval/advice for cross-border flows in cash-strapped countries without delaying my business?”


Answer (by Vasu Reddy)


“This is a common question I receive. It is related to emerging market challenges for treasury that most corporates still experience.

My idea is to proactively submit an application in advance. This application should indicate the nature and scope of the transaction, the benefits to the company, and the impact on the country (including currency and cash implications). Furthermore, it should include the reasons for not sourcing locally, the basis for the costing, and supporting documents such as supplier agreements, shipping documents, etc.

If it is a recurring remittance, such as royalties or monthly Global service charges, then a special dispensation should be applied for (renewed annually) to avoid individual applications resulting in increased costs, efforts and delays.

The best approach is to work closely with your authorized dealer, who is your main partner bank and who has strong links with the Central Bank, has automated systems and is fully aware of regulatory changes. ”

Vasu Reddy



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Discussion LinkedIn poll | The impact of recent interest rate increases on treasury

Welcome to the second edition of this newsletter where we discuss the latest treasuryXL poll on current issues in corporate treasury. We will take you through what treasurers think about a current topic by their votes, and a couple of treasury experts will explain their views on the subject. In this edition, we discuss what treasurers should do first to control against sharp increases in interest rates.

We have invited Niki van ZantenJeremy Tumber and Vincenzo Masile ACT ICM ICA ACAMS to share their views on the topic.

25-07-2022 | treasuryXL LinkedIn |

Poll Results: The impact of recent interest rate increases on treasury

Treasury and increasing interest rate


We clearly notice that the majority of the treasurers are of the opinion that the first thing to do to control sharp interest increases is to reconsider the investment strategy of excess cash. We asked a number of treasury experts to explain why they voted for the other options than for a reconsideration of the investment strategy.

Views of treasuryXL experts

Niki van Zanten

 

“Place excess cash in USD requires a holistic approach, the right time and knowledge, but if applied correctly, will manage your cash like a pro”

Niki voted for the option to move excess cash to USD.

 

Treasurers want to manage certain risks, and often there is a silo approach. Liquidity risk is managed with loans and deposits, Interest risk (and returns) are managed with products such as interest rate swaps and FX is managed with FX spot, forwards and swaps. Once the incoming data (think bank balances, forecasts, markets rates) is structured, the data becomes information and is sufficient to act as treasurer with clear objectives (these are often defined in the above silos).

The next step would be to validate whether the approach meets the objectives. So, far nothing to worry about….until the market exhibits unexpected behavior. For example, a disconnect between FX swap points and underlying interest rate differentials (Jan 2015 USDCHF as a reference), or perhaps a need to optimize interest rates. In this case (and when provided time and knowledge is available), a holistic approach to FX, interest rates and cash can provide the opportunity to place excess cash in a higher-yielding currency without adding FX risk to your portfolio.

In short, it may make sense to place excess cash in USD if it does not shift FX risk or if this shift is managed by FX swaps and the pricing between swaps and deposits is compared. Again, this requires a holistic approach, the right time and knowledge, but if applied correctly, will manage your cash like a pro.

Some considerations may be to look at the efficiency of FX swaps versus deposits, as FX swaps tend to be more efficient, automation of solutions, and tracking and identifying market behavior.

 

Jeremy Tumber

 

 “Analyze how your company is exposed to the economic cycle ”

Jeremy voted for the option to choose something else.

 

First, analyze how your company is exposed to the economic cycle – a study I saw in the early 2000s showed that the best position for airlines was to be 100% floatig, because their business was effectively in lockstep with the business cycle.

In theory, when an entity is part of an industry that is closely aligned with the economic cycle, it has a natural hedge for its interest rate exposure, in that it can afford to pay higher interest rates when the economy is booming, and get some relief from lower interest rates when the economy is slowing. The study I’m referring to involved a major German airline; at the time, the airline’s funding was 80% fixed, and their comments at the time were not very favorable to switching to such a large floating exposure. Fast forward 15 years, or so, and I checked their Financials. They were 85% floating at the time, so they had clearly stepped into the results of the study.

The biggest risk for them would be an extended period of Stagflation, so I hope they do well in the current circumstances!

 

Vincenzo Masile

 

“My view here is that a treasurer should take a conservative approach”

Vincenzo voted for the option to move excess cash to USD.

 

Macro themes continue to drive financial markets. One does not have to look much further than the inverted US yield curve or the collapse in copper to understand that investors continue to re-price global growth prospects lower.

This is possibly because: (a) European activity is more exposed to the Russian energy supply shock and b) the U.S. economy has entered this global tightening cycle with more momentum and a positive output gap.

Inverted yield curves are typically bad news for pro-growth currencies (commodity exporters + Europe & Asia ex-Japan) and typically good news for the dollar, the Japanese yen, and the Swiss franc. This environment looks set to continue over the summer months as the Fed continues its tightening policy.

Recall that the German Bundesbank estimated that the Germany economy could take a 5% GDP hit if gas is rationed. It now appears that we are now not far from such a scenario. The pressure on European growth has caused the Eurostoxx benchmark equity index to fall 22% year-to-date, versus -20% for the S&P 500. The question will be how much more the ECB can tighten before the growth valves come down.

My view here is that a treasurer should take a conservative approach and assume that there are no large loans to be repaid to the banks, existing cash in excess should be moved to USD or to CHF or to JPY at least until the end of this year.

Sooner or later, Ukraine and Russia war will come to an end, so the cycle will reverse and EUR will become more attractive for investors and for treasurers.


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Ask the treasuryXL expert #1 How might digital trade transactions reduce the threat of fraud and money laundering?​

04-07-2022 | treasuryXL Vincenzo Masile | LinkedIn |

treasuryXL is the community platform for everyone with a treasury question or answer!

Today, we discuss a question that treasuryXL expert Vincenzo Masile often gets to hear within his treasury network about digital trade finance.

This edition, the following question will be answered:


“How might digital trade transactions reduce the threat of fraud and money laundering?”



Vincenzo Masile

“That is a question I think is very relevant right now, especially after Covid. Firstly, let me look back at trade finance over the past few years. In 2019 and 2020, trade finance came under scrutiny following a number of high-profile defaults, suspected frauds and double financings and, in some cases, the failure to provide proper collateral for goods.

While legislation to recognize electronic trade documents will not bring about an overnight change in financier confidence, it is likely to do so in the medium term.

A game-changer for digital trade

The availability of fully enforceable electronic trade documents recognized by the most widely used trade jurisdiction will in itself have a major impact on the approach of both companies and financiers towards digital trading solutions.

Transferable records, such as bills of lading, are the most important commercial documents in trade and currently, less than 1% of bills of lading are in electronic form. This is a huge missed opportunity, given that electronic transferable records will make trade safer, paperless, easier, cheaper, faster, and greener for companies.

Implications for the security in trade transactions and regulatory treatment of trade finance: URDTT

The Uniform Rules for Digital Trade Transactions (URDTT) version 1.0 are the result of the mandate given by the ICC (International Chamber of Commerce, Paris) Banking Commission to develop a high-level structure of rules, obligations, and standards for the digitalization of trade transactions.

The ICC Uniform Rules for Digital Trade Transactions (URDTT) are intended:

1. For a fully digital environment;

2. To be neutral with regard to technology and messaging standards; and,

3. To extend into the corporate space, including commercial transactions and the growing community of non-bank providers of financial services.

The URDTT are designed to be compatible with UNCITRAL (United Nations Commission on International Trade Law) Model Laws, including those Electronic Commerce, Electronic Signatures and Electronic Transferable Records.

The rules will serve as an overarching framework for digital trade transactions thereby providing global standardization, consistency and conformity, providing a collective understanding of terms and definitions, whilst promoting and supporting the usage of electronic records/documents/data.

Various technology service providers have already publicly stated their intention to work with the URDTT, in fact, a number have already incorporated the URDTT into their platform rulebooks and are actively looking at developing trade products based upon the URDTT.

Conclusions            

Trade finance functions that adopt appropriately targeted automation and advanced analytics as integral parts of their compliance operations will be more important than ever in this uncertain international environment. With such high volumes of transactions and increasing complexity, efficient trade financing is key to ensuring that warehouses, harbors and supply chains are running smoothly – thus keeping the age-old business of  international trade firmly afloat.”



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