Hedging Strategies 101: Layered Hedging

16-01-2023 | treasuryXL | Kantox | LinkedIn |

Avoid the cliff and protect your cash flows! When volatility is at an all-time high, the right currency hedging strategy can set you apart. And save your business from an uncertain future. Transform your FX risk with a layered hedging strategy that will help you withstand unexpected changes in FX markets and protect your margins.

When implementing an FX hedging program, finance professionals responsible for risk management must be aware of the ins and outs of their business. This will be the starting point to uncover potential gaps in the hedging strategy and also opportunities to implement the program that fits perfectly.

Let’s understand how a layered hedging program works and how it could fit with your FX strategy.

Why is a layered hedging strategy important?

Layered hedging programs allow CFOs and Treasurers to handle the related problems of FX markets volatility, shifting interest rate differentials, and less-than-stellar cash flow visibility.

The goal of a layered hedging program is to smooth out the hedge rate over time to lower the variability of company cash flows. Additionally, a layered hedging program that is created from scratch can deal with the problem of forecasting accuracy.

Instead of ‘protecting’ an FX rate, layered hedging programs build the hedge rate in advance. And because hedges are applied in layers, in a progressive manner, you do not need a 100% accurate forecast at all.

Who can benefit from a layered hedging program?

Not all hedging programs are the same, as they tackle different goals for managing FX risk. Before you implement a layered hedging program and start dedicating time and resources, you need to think about certain conditions. These relate to your current business model -including pricing structure, the FX exposure you want to hedge, cash flows, etc.- and your company’s specific needs when it comes to FX hedging.

This type of hedging program is best suited for firms that need or desire to keep steady prices not only for one individual campaign/budget period, but for a set of campaign/budget periods linked together. In layered hedging:

(a) Prices are usually not FX-driven, meaning that the FX rate plays no role in pricing strategy.

(b) The impact of the ‘cliff’ -a sharp adverse fluctuation in currency rates between periods-, cannot be passed on to customers at the onset of a new period.

(c) The exposure to hedge is a rolling cash flow forecast for a set of periods linked together.

Unlike other cash flow hedging programs, like static hedging where prices are either frequently updated or updated at the onset of a new budget period, pricing does not act as a hedging mechanism in layered hedging programs. And that puts cash flows at risk, so a solution must be found elsewhere.

In comes the star of layered hedging, smoothing the rate.

Smoothing the hedge rate over time

The secret of achieving a smooth hedge rate over time is to create commonality between trade dates for a given value date. Take, for example, a 12-month layered hedging program. The value date of October is hedged in 12 different months, from October in the previous year down to September.

Next, the value date of November is hedged in the same manner, starting in November of the previous year down to October. And so on and so forth. Note that the two value dates -October and November- share eleven out of twelve trade dates with the same spot rate. That’s the concept of the mechanically created commonality that lies at the heart of layered hedging programs.

However, the process of ‘layering the hedges’ is not as simple as it may seem at first glance. There are some common challenges that Treasurers and CFOs face when manually performing FX risk management activities.

Common challenges in layered hedging

Before crafting the optimal layered hedging program for your business, there are three common challenges that need to be considered. These are crucial to the success of the FX hedging strategy. And they relate to the configuration of the program, the intrinsic constraints of the business, and the level of automation currently available to the team. Let’s take a closer look.

  • Configurations. Depending on risk managers’ secondary objectives, there are many possible configurations for a layered hedging program. Some of these configurations regard:

(1) The degree to which the hedge rate is smoothed, for example by adjusting the programs’ length.

(2) The optimisation of forward points. For example, hedge execution can be delayed if forward points are ‘unfavourable’.

(3) The distance between the average hedge rate and the spot rate.

  • Constraints. Each treasury team may face its own set of constraints, some examples include:

(1) The degree of forecast accuracy.

(2) Possible limitations imposed by liquidity providers who might not let a firm trade forward contracts that expire, say, more than two years out.

  • Automation. Needless to say, a manually executed layered hedging program can be pretty demanding, especially if many currency pairs are involved. We’ve seen companies running such programs with the help of enormous spreadsheets. This only creates two different operational risks:

(1) Spreadsheet risk, including data input errors, copy & paste errors, formatting and formula errors.

(2) Key person risk, as only a handful of individuals understand the formulas that underpin the ‘monster’ spreadsheets.

Eliminating the uncertainty

Layered hedging programs are a powerful FX risk management tool to face the trifecta of problems created by a highly volatile scenario. These hurdles include currency risk —including the risk of a cliff, as we saw recently with the GBP-USD exchange rate—, shifting interest rate differentials, and less-than-stellar cash flow visibility.

Now that you know the ins and outs of layered hedging, you can start transforming your FX risk management workflow. And forget about the challenges that may come when facing uncertainty. That’s a pretty powerful advantage in a scenario of pandemics, inflation and war!

Optimal hedging strategy with Currency Management Automation

If you want to leave behind the challenges of manual work when it comes to currency risk, consider implementing automation software.

Kantox is the only solution that streamlines the currency management process through powerful automation of the entire FX workflow. This enables businesses to reduce currency risk, protect profit margins and price more competitively.

How can fintech rise to the challenge of AML compliance?

12-01-2023 | treasuryXL | Refinitiv | LinkedIn |

A new white paper from Refinitiv, produced in collaboration with global consultancy, FINTRAIL, unpacks some of the key financial crime-related challenges facing fintech today, and explores how companies in this evolving sector can best manage AML compliance.

 

  1. A new white paper explores three key challenges currently at play in the fintech space.
  2. Fintech priorities are balanced between operational efficiencies, positive customer experiences and regulatory compliance.
  3. Discover more in the paper from Refinitiv and FINTRAIL, which is based on interviews with experts in different international fintech.

For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.

Fintech and illicit activity

The fintech space is highly dynamic and agile, but this industry of innovation and opportunity is substantially impacted by a constantly evolving financial crime landscape.

Emerging technology, quickly adopted by fintech and leveraged to make every facet of our lives easier, is similarly harnessed by financial criminals seeking to engage in illicit activity.

Criminals seeking to evade controls are resourceful, quickly making used of new opportunities to conduct illicit activity

New findings from Refinitiv and FINTRAIL – based on interviews with experts in different fintech across a range of geographies – reveal the top challenges faced by the fintech and focus on three key challenges currently at play in this dynamic space.

Read the white paper: AML challenges for fintechs: Insights for the future

What are the three key challenges facing fintech?

Online fraud

Fraud continues to grow across the globe and is a key pain point highlighted by the fintech we spoke to.

One of the top fraud-related challenges currently in play is application fraud, where sophisticated financial criminals typically impersonate individuals or make use of synthetic identities.

Illicit actors are leveraging powerful technology to do this – manipulating information, tapping into advanced graphics techniques and exploiting vulnerabilities wherever possible.

In the UK, reported losses totalled £2.35bn in 2021. In the U.S., 2.8 million consumers made fraud reports in 2021.

In the United Kingdom, where fraud is the most commonly experienced crime, reported losses totalled £2.35 billion in 2021. In the United States, fraud trumps all other proceed-generating crimes and 2.8 million consumers made fraud reports in 2021.

 – AML challenges for fintech: Insights for the future

The fintecs we spoke to are responding in a range of ways, from providing better customer education and raising awareness to protect vulnerable customers, to ramping up collaboration initiatives between the private sector, governments and law enforcement agencies.

Digital assets and cryptocurrency challenges

Crypto continues to grow, and hand-in-hand with this, regulation within the sector is also increasing.

Against a highly dynamic situation, where products and technologies are evolving at speed, virtual asset service providers (VASPs) need to keep pace with a changing regulatory curve, especially when it comes to complying with differences across jurisdictions.

Even fintech that don’t bank digital assets need to stay acutely aware of the crypto-related risk as they may interact with VASPs, and consequently, need to understand potential regulatory obligations.

Sanctions

Sanctions are another key challenge for fintech, and little wonder given the global sanctions landscape that has unfolded throughout most of 2022.

AML teams have been scrambling to keep pace with the exponentially rising volume of sanctions, especially – but not only – those related to the Russian invasion of Ukraine.

Not only has the absolute volume of sanctions been increasing, but individual sanctions have been becoming increasingly complex, leading to rising compliance costs for fintech as well as their traditional financial services industry counterparts.

Non-compliance can have far-reaching consequences – ranging from financial to reputational and more.

Sanctions are our highest priority and receive dedicated 24/7/365 attention

A best practice response

The fintech we spoke to are acutely aware of the need to protect against widespread illicit activity and of the requirement to remain compliant at all times.

At the same time, they operate in a lean industry of constant change, exponentially growing customer bases and a breakneck pace of business.

This means that building a best-practice response to financial crime must be carefully considered, efficient and effective.

Leading-edge AML technology, robust data and skilled compliance professionals – whether in-house or outsourced – can offer the solution to help manage and mitigate financial crime risk and the key challenges outlined above.

High on the list of fintech priorities is striking the all-important balance between operational efficiencies, positive customer experiences and regulatory compliance – and with the right data, technology and human insights, this delicate balancing act can be maintained.

Read the white paper: AML challenges for fintechs: Insights for the future

Building a platform for success

11-01-2023 | Cobase | treasuryXL | LinkedIn |

Banks provide solutions to connect and integrate corporate ERP systems, most of which are based upon batches of data being exchanged between the accounting platforms of the company and the bank. However, these are bank and country-specific and not a scalable solution fit for future growth or expansion.

Source

Also it is important to determine whether payment batches follow a consistent approval chain. Malicious activity is difficult to detect in a cumbersome and scattered ERP and bank environment so treasury teams need to have confidence that payment batches generated in the ERP system are automatically sent to the banks in the right format and in compliance with local security standards.

In the third blog in this series we explore the merits of connecting accounting systems and/or ERP systems to your bank(s) and why companies benefit from being able to execute payments from a single platform.

Merits of connecting accounting systems and/or ERP systems to your bank(s)

If the company connects its ERP system through a platform or a dedicated middleware layer, this creates a tight workflow to which consistent approvals can be applied, reducing the scope for unauthorised payments. Automatic information feeds also support the execution of sophisticated liquidity forecasting and management of foreign currency exposure.

An additional factor for corporates to consider is whether their provider will be able to move to open banking APIs once their bank(s) make them available and provide APIs to their ERP environment. Connectivity between corporate accounting software and bank portals generates a number of benefits for corporates, including the availability of balance and transaction information in real-time to enable more accurate and timely decision-making and further optimise cash and credit lines.

Multiple cash management banking relationships make managing payments and cash a cumbersome process that involves logging in and out of different bank portals and managing disparate authorisation schemes while trying to ensure that bank data and data in ERP or accounting systems are synchronised.

Most ERP systems allow for batch payments only and have no interface for individual payments, which means there is no screen where individual payments can be entered manually.

Why companies benefit from being able to execute payments from a single platform.

When treasurers are unable to send single payments out of their ERP system directly to their bank, they are required to log into individual portals to perform these payments. This can become a frustrating process when they have to look for security tokens or recall passwords that are rarely used because of the sporadic nature of the payment.

It might be tempting to assume that this is not a major issue given that these payments are not made regularly and are often of low value. However, there will be situations where high value one-off payments have to be made. Regardless of the value of the payment, it is much easier to execute it from a single platform because the user experience is the same across all banks.

In the final blog in this series we will look at the benefits of maintaining a complete audit trail of payment activities and the advantages to be gained from having a consistent payment approval workflow across business units.

The ultimate guide for achieving efficient and safe multibank cash visibility and payments

Treasury teams looking to optimise their cash management processes realise that making smart decisions requires tactical and strategic planning. However, there are a number of principles that can be applied by any business to increase the level of insight into how funds move into and out of their organisation.

That’s why we created ‘The ultimate guide for achieving efficient and safe multibank cash visibility and payments’. In this guide you’ll find questions that you can ask yourself to determine your current level of efficiency and spot the areas you might need to improve.

Interview | 7 questions for Adesola Orimalade, Seasoned Treasury Professional

09-01-2023 | treasuryXL | Adesola Orimalade | LinkedIn |

 

Meet our newest expert for the treasuryXL community, Adesola Orimalade

Adesola is one of the few Treasury professionals around who has worked in both banking and corporate treasury, across various industries and in both Africa and Europe.

Since walking into his first role over a decade ago, he has built his competence in many areas of treasury including cash management, treasury operations and operational/liquidity risk management.

Aside from his professional background Adesola is passionate about using his professional knowledge and expertise to support voluntary organisations that operate within his areas of interest (homelessness, poverty, climate change etc). He currently serves on the board of a U.K. charity.

 

We asked Adesola 7 questions, let’s go!

INTERVIEW

 

 

1. How did your treasury journey start?

 

Having obtained a diploma in Town and Country planning and a first degree in Estate Management, my desired career path was to work for any of the regional or multilateral agencies devoted to development finance, urban renewal, housing etc. Growing up I had seen the slums in cities like Nairobi, Johannesburg and even Lagos. I wanted to make a difference.

Life however had a different plan for me, I started working in international banking operations at Citibank purely by accident.

It was during my time in international banking that I was first introduced to Treasury. Trade Finance as you know has a lot of opportunity to interface with Treasury and whether that’s in terms of arranging FX for importers to enable them to pay for machinery or raw materials purchased from abroad or issuing an advance payment guarantee on behalf of a contractor.

Later on I joined Standard Chartered Bank as the pioneer head of trade finance in Nigeria and as it was a small team I also served as back up to the treasury operations manager whenever she was away. It broadened my exposure to banking treasury as I got involved with managing risk across the front, middle and back office functions including taking responsibility for the confirmation and settlement of deals, position reporting and so on.

It wasn’t until 2005 however that I got into the corporate treasury which was again purely by accident. A large telecommunication service provider was seeking to enhance their corporate treasury and someone recommended me to the CFO. I was offered the deputy head of treasury role and was promoted into the Treasury Manager shortly thereafter.

That role was to fuel my passion for Treasury and although I had enjoyed my career in international trade, I wanted to build my future career path within the Treasury space.

 

2. What do you like about working in Treasury?

 

As biased as this may sound, I believe that Treasury sits at the center of an organization, and we are therefore a significant player in many of the major decisions required especially those with financial implication.

That importance of Treasury and the ability to make a positive impact within the organization is what I really like about Treasury.

In addition, I also enjoy the fact that Treasury interfaces with a lot of internal and external stakeholders. Building and nurturing those relationships is also something I enjoy about working in Treasury.

Finally the treasury is impacted by a lot of socio-economic issues external to an organization. I enjoy being informed. I enjoy current affairs. I enjoy reading and understanding the world from an economic, social, environmental and political perspective. It is great to be in a career where my passion can relate with my day to day activities.

 

3. What is your Treasury Expertise and what expertise gives you a boost of energy?

 

I view myself as a Treasury Generalist given that I have worked in both banking and corporate treasury. I have had the opportunity of working in organisations where I had responsibility for the typical front, middle and back office treasury functions.

The areas that give me a big boost however are Cash/Liquidity Management and building cash forecast models/tools, Working Capital Optimisation/Management, building greenfield treasury teams and/or functions as well as developing existing treasury teams and/or process re-engineering.

 

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

 

When I left Nigeria to relocate to the United Kingdom, I wanted to continue building my career in Treasury but the response from my looking for roles was ‘you lack U.K. Treasury experience’.
I was excited when I got my first role in Corporate Treasury and when I look back now my best experience is that I have been able to build my career twice in a lifetime on two different continents.
Very few people can say that .

 

5. What has been your biggest challenge in treasury?

 

Successfully managing the treasury function for an online travel company during the recent covid pandemic comes easily to mind. This is bearing in mind that the travel/airline industry was one of those that was significantly affected by the local and cross border restrictions that were introduced globally.

 

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

 

I think the recent experience from the pandemic means that businesses would continue to focus on cash visibility, liquidity and financial risk management and how technology can be used to achieve better cash forecasting.

 

7. Is there anything that you would like to share with our treasury followers that they must know from you?

 

Over the last couple of years I have been trying to get more young people involved in treasury; especially young people from ethnic minorities in the U.K and across Europe.

On one level treasury professionals can come across as being all technical and number crunchers so the idea is to show that the profession is all inclusive.

I have been to take that message to various institutions within Europe, sharing with them “What a day looks like in the life of a treasurer”. I ran workshops for that purpose at the University of Nottingham Business School and Cologne Business School.

 

Want to connect with Adesola? Click here

 

Thanks for reading!

 

 

Kendra Keydeniers

Director Community & Partners, treasuryXL

Making the most of automation

04-01-2023 | Cobase | treasuryXL | LinkedIn |

We have previously identified automating critical workflows as one of the key components of intelligent treasury management.

Source

There are many aspects of the treasury function where automation frees up time for the treasurer to focus on higher value tasks. Skills that are expected to be less important in the future – such as reporting and risk projection – are already being automated.

In the second blog in this series we explore the benefits of automatically processing bank statements and removing manual downloads of balance information from individual bank portals and manual uploads of payment files to every bank.

Benefits of automatically processing bank statements

The obvious reason for moving to automated processing of bank statements is that it is a much more accurate process that reduces the scope for error. Much higher volumes of data can be processed compared to manual processing and it provides for seamless integration into back office systems such as financial accounting or ERP systems (of which more in our next blog).

Automatic bank statement processing enables data to be structured in a way that facilitates improved cash flow analysis. Standardised information enables this data to be consumed easily by back office systems to achieve improved reconciliation.
The major benefit of this integration is increased efficiency – all the benefits of ‘automation by default’ are applicable here.

Any treasurer seeking to run cash flow analysis needs to make sure that all payments (both incoming and outgoing) are processed uniformly so they can be absorbed by a single system without manual intervention or modification.
In many organisations, managing cash positions over multiple banks and accounts remains a manual process, increasing the possibility of human error.

One of the main reasons for this continued use of manual processes is that harmonisation is not easy to achieve. Implementation is complex because every bank uses a slightly different means of connectivity and different payment formats, making it a challenging landscape for individual corporate treasurers to navigate.

Removing manual downloads of balance information from individual bank portals and manual uploads of payment files to every bank.

In addition, treasurers face more pressing concerns so addressing this complexity is rarely a priority. The perception is that if the existing manual process works there is no imperative to fix it, a view that has been reinforced over the last few years as corporates grapple with many other pressing issues.

Ironically, it is exactly events such as the global pandemic, the war in Ukraine, rising inflation, and the disruption of global supply chains that have highlighted the weaknesses of manual treasury processes.

Eliminating manual handling of payment data reduces opportunities for fraud and adds to the transparency, quality and speed of payments. Digitisation also provides companies with better visibility of their financial operations and improved governance.

In the third blog in this series we will look at the merits of connecting accounting systems and/or ERP systems to your bank(s) and why companies benefit from being able to execute payments from a single platform.

The ultimate guide for achieving efficient and safe multibank cash visibility and payments

Treasury teams looking to optimise their cash management processes realise that making smart decisions requires tactical and strategic planning. However, there are a number of principles that can be applied by any business to increase the level of insight into how funds move into and out of their organisation.

That’s why we created ‘The ultimate guide for achieving efficient and safe multibank cash visibility and payments’. In this guide you’ll find questions that you can ask yourself to determine your current level of efficiency and spot the areas you might need to improve.

Recording | The Future of APIs webinar 13 December 2022 | treasuryXL & Cobase

29-12-2022 | Cobase | treasuryXL | LinkedIn |

Are you unsure about the discussion surrounding APIs and Treasury, or do you want to learn more? If so, you should definitely watch the recording of the joint webinar together with Cobase on the future of APIs to get more information.

This webinar is not just for tech experts, but also for treasurers interested in treasury technology who are looking to improve their infrastructure. During the webinar, you will learn about APIs, who owns them, and how to be more successful with them.

Making cash management processes work for business

28-12-2022 | Cobase | treasuryXL | LinkedIn |

Cash management strategies have come under intense scrutiny of late as a result of various geopolitical and economic factors. Industry surveys point to corporates becoming more risk-averse and seeking to increase their cash balances as the specter of recession looms large.

Source

In the first in a series of blogs, we look at how increased efficiency can enable treasury teams to achieve full visibility on cash at accounts across business locations and banks and the need to manage complexity around different payment formats.

Treasury dashboards

There are various solutions that help corporates gain visibility into their overall cash positions and run an efficient payments operation. For example, treasury dashboards are a useful tool for demonstrating actual fluctuations in cash positions, which supports real-time account visibility.

A treasury dashboard is a management tool that allows assessment of the financial organisation and position of a company. It is made up of various indicators, charts and instruments that combine to create a holistic view of historic financial performance and future projections.

Treasurers can use these dashboards to produce user-definable reports on financial transaction data such as receivables and payables, cash on hand, and days outstanding, as well as increasing the efficiency of their hedging strategies and maximising their impact on corporate strategy.

Despite corporate awareness of the benefits of such technology, there are still companies with operations across multiple jurisdictions that rely on Excel spreadsheets, locally filled and send around, and therefore lack timely and centralised visibility of the cash sitting in their various subsidiary businesses.

Harmonised practices also increase visibility. Uniform processes help treasurers track cash outflows and balances across the entire organisation, although it is important for companies to determine exactly what information should be visible and to whom.

Managing complexity around different payment formats

While treasurers may choose to accommodate for the many different payment formats as required by the banks internally, that is certainly not a core activity of any treasury team.

The choices they have are:

  • Hire more specialised consultants;
  • Rely on internal IT teams (which is not ideal because local IT teams are not specialists in payment technology and formats accordingly); or
  • Find a partner/platform that takes care of – and specialises in – this activity.

By 2025 the high value payment systems of all major reserve currencies is expected to have moved to ISO 20022. ISO 20022 is a rich, structured and extensible messaging standard that is increasingly becoming the de facto standard for exchange of payments and reporting in high value, instant and other domestic payment schemes.

As a result, banks and the SWIFT community have decided that all financial institution to financial institution payments need to move to the standard. Adoption of ISO 20022 will begin on 20 March 2023.

However, although the richer data facilitated by ISO 20022 improves cross-checking, increases transparency, and reduces false positives, many corporates are holding onto older data formats rather than adopting newer, enriched versions that use XML. However, specialised support to enable the transformation to these new formats is readily available in the market.

In the second blog in this series we will look at the benefits of automatically processing bank statements and removing manual downloads of balance information from individual bank portals and manual uploads of payment files to every bank.

 

The ultimate guide for achieving efficient and safe multibank cash visibility and payments

Treasury teams looking to optimise their cash management processes realise that making smart decisions requires tactical and strategic planning. However, there are a number of principles that can be applied by any business to increase the level of insight into how funds move into and out of their organisation.

That’s why we created ‘The ultimate guide for achieving efficient and safe multibank cash visibility and payments’. In this guide you’ll find questions that you can ask yourself to determine your current level of efficiency and spot the areas you might need to improve.

A guide to conditional FX orders

27-12-2022 | treasuryXL | Kantox | LinkedIn |

In this article, we look closely at conditional FX orders, a powerful tool when executing your hedging strategy, and the unique role it plays in currency management — especially when it comes to delaying the execution of hedges.

Conditional orders: a brief definition

A conditional FX order is an order to execute a spot or a forward transaction to buy or sell one currency against another—but only when a predetermined limit is reached.

Conditional orders include stop-loss (SL) and take-profit (TP) orders. While SL orders are aimed at avoiding losses beyond a certain limit, PT orders are designed to take advantage of favourable moves in currency markets.

Note two time-related aspects of conditional orders in forward markets:

(a) The tenor of the underlying forward contract is specified (it could be one month, six months, or a year)

(b) The validity of the order is specified too (it can be valid for two weeks, six months, or set on a  good-until-cancelled basis).

Conditional orders are usually set on an OCO basis: one-cancels-the-other, automatically to avoid the same exposure being hedged twice in the event of extraordinary market volatility. 

Note, too, that in the event of extraordinary market volatility, conditional orders can be executed at less favourable levels than desired. This limitation exists not only in FX but in all financial markets. 

A powerful tool for risk managers

The primary purpose of conditional orders is to provide a safety net around an FX rate that the treasury team wishes to defend.

It can be the rate used in setting prices —aka the campaign/budget rate—or a ‘worst case scenario’ FX rate.  

Say that you wish to defend the rate of EUR-USD = 1 on a spot basis while the market is trading at 1.08. In this case, it is prudent to set three SL orders, each covering a third of the exposure, at 1.02, 1.00 and 0.98, respectively.

Assuming that the three levels are hit, you are mathematically assured to defend your budget or worst-case scenario FX rate.

Time is on your side

In hedging programs designed to protect a budget FX rate, the ‘buffer’ set between the market rate towards the start of the campaign and the rate to be defended with SL orders provides risk managers with a critical resource: time. 

As long as the SL orders are not executed, the passing of time means that hedge execution is delayed while FX risk remains fully under control. This brings the following four systematic advantages:

(a) More time to update cash flow forecasts

(b) More savings in terms of the cost of carry when forward points are unfavourable

(c) No cash immediately needed for collateral requirements

(d) More netting opportunities

And it’s not over yet! With luck, your TP conditional orders can be hit as well. 

Backtesting conditional orders

We recently conducted a backtest of a hedging program designed to protect the budget rate of a UK-based exporter selling into emerging markets. Over a four-year period (2017-2020), the firm would have outperformed its budget rate in three of those years while equalling it in the remaining year. In one year alone, overperformance reached 5.8%.

Delaying hedge execution with risk under control allowed the treasury team to hedge on the back of firm commitments, providing a better hedge rate than the stop-loss orders. So there you have it: when managing currency risk, consider using conditional orders. Time will be on your side. And you’ll sleep well at night! 

P.S. If you’re drafting your upcoming budget, download our Budget Hedging report and find out how to use conditional orders.

Conditional orders

Q&A with German Karaivanov | GTreasury Report

22-12-2022 | treasuryXL | GTreasury | LinkedIn |

GTreasury has compiled a market report in conjunction with PNC in order to provide actionable insights for mid-to-large companies with multinational operations and small treasury teams. The report finds that CFOs and Treasurers remain optimistic, and focus on reducing inefficiencies and streamlining operations.

GTreasury Interview Report

What will be the road ahead for CFOs and Treasurers? treasuryXL wanted to know more and held a Q&A with GTreasury’s VP of Product Management: German Karaivanov. Read below for German’s takeaways and thoughts on the report.

Q&A with German Karaivanov

 

At a high level, what are the three biggest takeaways corporate treasurers should glean from this report?

The new Pressure Points, Payments & Plans for Automation: The Road Ahead for CFOs and Treasurers survey report—conducted by Topline Strategy and commissioned by GTreasury and PNC Bank—finds corporate treasurers and CFOs are acutely focusing on three transformation goals right now. The first focus is fueling growth: treasurers and CFOs are eager to reduce costs wherever they can, but still need to be able to spur growth by improving risk management practices and getting more granular (and predictive) with their cash visibility, among other initiatives on this front.

Deploying more modernized treasury technology was also reported as essential to navigating market uncertainty—opening the door to more data-backed opportunities that can directly tie into business goals.

Also among the top-line takeaways: treasurers and CFOs are clearly ready to enter a new phase of automation for treasury functions (and across their organization’s broader financial groups). While early automation efforts had more of an ERP focus, respondents signaled that they are increasingly prepared to adopt more mature automation into their systems and apply it strategically to meet modern treasury and finance needs. 


What were the demographics of the survey?

The report surveyed 93 finance executives and corporate treasurers from more than 20 industries. Participants represented large and mid-sized enterprises in both the United States and abroad. We purposely wanted to ensure a cross-section sample that wasn’t over-pinned to any one geography or industry.


CFOs and treasurers seemed to have differing opinions in a few areas covered in the report. Was this surprising?

CFOs and treasurers are on the same page in that they’re both pressing to make treasury practices more automated, more accurate, and more efficient. But CFOs in the survey show a clear preference for prioritizing cost efficiency. Corporate treasurers, on the other hand, tend to champion improved treasury functions and operational efficiency—and that proved especially so when it comes to achieving real-time insight into cash positions. There was a clear divide here, but I don’t think it was all that surprising. More CFOs need to understand that they can have it both ways. Adding more treasury functionality, integrations, and automation will make treasury operations more efficient, both with treasury technology budgeting and with the bandwidth it frees up for treasury teams to focus on the most urgent and critical business-growth initiatives.

But even for their differences, both CFOs and treasurers do plan to leverage new banking and treasury systems to achieve their goals. Strategic technology implementations that offer process modernization and automation will reduce costs by eliminating inefficiencies and provide treasurers with optimal tooling—checking boxes for CFOs and treasurers alike.

Technology modernization is certainly a theme of the survey. In what areas do treasurers and CFOs seem especially excited about transformation?

82% of survey respondents reported payment automation as a very or extremely important focus area for their planned software projects. It was clearly the highest automation priority. CFOs and treasurers view payment automation as delivering higher staff productivity, process efficiencies, improved cash visibility, enhanced fraud protection, compliance assurance, and modernized processes aligned with the demands of the digital economy. It seems clear that payment automation will come a long way in 2023. Other high-priority focuses for software modernization projects included accounts receivable, billing, and financial planning and analysis. 

I found the results around digital transformation concerning: more than half of survey respondents said they didn’t yet have a formalized digital transformation plan even though there was a clear (and increasing) interest in making technology investments. Organizations either sticking with outdated, legacy systems are increasingly at risk as their competition advances. There’s also the internal experience: it’s easier for CFOs to hire and retain top treasury talent if their organization is using technology that makes treasurers’ jobs smoother and more efficient.

But when it comes to digital transformation, there is good news. Given the current volatile market, organizations that start their digital transformation now will likely be able to realize the benefits of their initiatives particularly quickly.

The report was conducted by a third-party, but backed by GTreasury and PNC Bank—one of the biggest banks in the United States. What is GTreasury’s relationship with PNC Bank?

GTreasury’s partnership with PNC Bank is a strategic alliance, one that enables us to bring a range of cash and FX risk management products to the market as part of PNC’s extensive digital channels and services.

 

Thank you for reading!

 

Download the market report

Interview | 8 questions for Dinesh Kumar, Treasury Strategy Consultant

20-12-2022 | treasuryXL | Dinesh Kumar | LinkedIn |

 

Meet our newest expert for the treasuryXL community, Dinesh Kumar.

Dinesh is specializing in architecting and leading large scale treasury technology transformations helping clients embrace the power of technology.  He supports group wide treasury projects in the further development of a broad range of methods and processes in the related treasury IT systems, e.g., improvement of cashflow planning, FX management and treasury reporting.

He involves in designing overall organizational strategy in the field of treasury technology application services, including evaluating new processes, models, pricing, and tools and related competitive offerings delivered treasury Service providers.

Dinesh has successfully led large treasury transformations projects utilizing SAP S/4 HANA across US, Australia, and Middle East region.

 

We asked Dinesh 8 questions, let’s go!

INTERVIEW

 

 

1. How did your treasury journey start?

After finishing my studies in Finance, I started working on stock and option trading platforms at a stock broker firm. I learned the basic concepts of stocks and options. I also built up experience at  the front office, middle office, and back office. During my time at this stock broker firm I received a lot of exposure working on trading platforms.

After 2 years, I got a chance to work on a SAP treasury implementation for a giant telecom company. I worked on Money Markets, Derivatives, Forex and Cash Management. Since then I am working on Treasury transformation projects for various clients in various countries.

 

2. What do you like about working in Treasury?

 

I love the diversity of challenges. You are dealing with the financial heart of the company and need to make sure that the right amount of blood reaches every cell. I was more into technology so turning treasury operations into systems was always challenging. I worked for many international clients, I had the opportunity to learn how different companies from different sectors and industries adapt their treasury operations and cash management as per various country regulations.

 

3. What is your Treasury Expertise and what expertise gives you a boost of energy?

 

I have been working in various roles on different Treasury projects, from interim roles to system implementations. My core treasury expertise areas are the selection and implementation of Treasury Technology (i.e., SAP, Payment Hubs, SWIFT, integration with Trading Platforms), Treasury Analytics and Insight, Technology Integration and Optimization, and Application Managed Services.

 

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

 

For me, it’s working with different geographies, different people and cultural diversity that I personally feel is the greatest experience so far.

 

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

 

“Sound treasury management begins with a robust treasury policy”.

 

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

 

Treasurers play a unique role in managing a large portion of the balance sheet. In addition to the detailed understanding of the organization in which they operate, they are closest to macro-economic developments, particularly financial markets, and can offer valuable insights to support corporate strategy.

Increasingly over the last 10-15 years treasurers have been asked to play a bigger role, as a strategic partner to the board, advising on how best to build the business line with funds available. Treasurers, certainly in the larger companies, are now much more visible in the board room, recognized for the skills and knowledge they can bring to the table.

 

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

 

More and more treasurers are getting involved in ESG initiatives. Not only financing them but also embedding them into treasury processes and spearheading departmental sustainability projects. When discussing ESG in corporate treasury, green financing is often mentioned as one of the main instruments to support ESG goals.

I sense that treasurers generally are now exploring options other than multiple spreadsheets, excel data, and month-end accounting and reporting much more than they used before Covid. They are devoting more time and energy to enterprise digitalization and process automation. This is enhancing their ability to support the business round the clock from the office or virtually.

With the help of technologies like AI, we can make fact-based decisions much more rapidly in terms of resources available. Such advances are helping us to analyze M&A opportunities more critically, and explore funding, forecasting, and hedging options more forensically, even helping predict and shape our responses to supply chain disruptions.

Technology is allowing us to think and act differently, in a good way, and as treasurers, we have to seize it.

 

8. Is there anything that you would like to share with our treasury followers that they must know from you?

 

Finance and in particular treasury operations today are very dynamic and open to many uncertainties. And all the signs are that the current turbulence will continue for some time yet, perhaps worsen considerably.

In such a climate treasurers need a highly dynamic approach to fulfilling both their core and strategic responsibilities. They need to anticipate and react quickly to fast-moving developments.

They should not be afraid to act decisively, even though it may not be possible to do so based on having a clear direction and end-point certainty – inaction can also cause considerable damage.

 

Want to connect with Dinesh? Click here

 

Thanks for reading!

 

 

Kendra Keydeniers

Director Community & Partners, treasuryXL