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

The 3 Fundamental Treasury Concepts: Transfer Pricing

14-12-2022 | Vasu Reddy | treasuryXL | LinkedIn |

The 3 fundamental treasury concepts being discussed currently include Working Capital Management, Bank Relationships and Treasury Transfer Pricing which are pivotal pillars for effectively and efficiently optimizing cash, liquidity,  funding and managing risk for any Treasury function to support the achievement of the organizations business objectives and strategy. In the second blog of a series of 3, Vasu Reddy explains the best practices and benefits of Treasury Transfer Pricing.

Intercollegiate loans and intercollegiate services MUST be billed and charged at a market rate – i.e. as you would bill/pay a third party to avoid tax risk and margin loss.

How to price loans and how is service charge billing done?

  • The price of a loan can be obtained from partner banks, financial institutions and the market, using the central bank rate of the borrowing LE as a benchmark and taking into account the borrowing LE’s creditworthiness, balance sheet strength and currency of the loan based on standardised inter-loan agreements.
  • The billing of service charges by head office to OPCOs is based on time commitment, transaction volume or actual costs incurred plus a margin – this is usually the difference between the market rate and the risk-free rate and may be agreed with the tax authorities.

What are the benefits of good managing of Transfer Pricing?

  • Reduced Tax Risk
  • Reduced margin Risk
  • Improved Cash repatriation and concentration
  • Accurate cost allocation and recovery
  • Reduced Trapped Cash

 

Thank you for reading. If you want more explanation, I’d be happy to help!

 

Vasu Reddy

Corporate Treasury, Finance Executive

The Impact of Russian Aggression on Regional Treasury & FX

13-12-2022 | treasuryXL | ComplexCountries | LinkedIn |

This call was held at a point in the conflict where Ukraine had made serious inroads into Russian held territory, and there was a lot of talk about the potential use by Russia of nuclear weapons. So, one of the questions was whether treasurers are expecting a nuclear escalation, a spread of the conflict, and what to do to prepare for it.

Source

None of these concerns were mentioned. For most companies, the business in the countries surrounding Russia and Ukraine is minimal. The bigger concern is, and remains, the impact on the business outlook in the rest of the world, the impact of increasing interest rates, inflation, and logistics issues – though logistics seem to be improving.

Instead, most participants continue to do business in Russia – mostly because they are in industries that benefit from the health and humanitarian exceptions to sanctions. In other cases, the business is essentially local, but uses the corporate brand – this means care must be taken when withdrawing. Having an exception from sanctions still leaves issues:

  • Even if your currency transactions are legal, a lot of banks refuse to handle them, because they do not want to take the risk of dealing with the country.
  • Many banks withdraw, reducing the choice of service providers. There was a lot of discussion about Citi – most participants use them, but there has been some confusion as to whether they are staying. The message to all participants is that they are.
  • Even when cross-border transactions are processed, there can be a lot of delay: the banks’ compliance departments examine everything very closely – but they are overworked.
  • The definitions of sanctions exempted products are inconsistent between various sanctioning groups (notably, the US and the EU), and they leave logical inconsistencies
  • The sanctions and regulations on both sides are something of a moving target, so compliance can be challenging.
  • There was an informal trouble zone in the countries surrounding Russia: Georgia, Kazakhstan, etc. This business is now moving to USD and EUR, which has reduced liquidity.

Despite this, our participants found it is generally possible to make payments into and out of Russia, even if the process can take a long time. Banks are moving to close offshore rouble accounts, especially in London, but they are being flexible over deadlines. Dividends are definitely not allowed, but most other types of payment seem to be possible. While some participants continue to move towards the exit – protecting local employees remains a priority – other are finding that their business in Russia is doing surprisingly well.

In terms of banking, everyone seemed to be using Citi [this discussion took place before Citi announced their withdrawal from Russia – from March 2023], though most were opening accounts with Raiffeisen as a backup. This is a return to the Communist era, when Raiffeisen was the main conduit for payments to and from Russia.

Bottom line: for our treasurers, the main concern is slowing economic growth in the west, increasing energy prices, higher interest rate and inflation. This is impacting their main business, which is typically not in Eastern Europe. As for Russia itself, people continue to move towards the exit – but those who have to stay, for mostly humanitarian reasons, are finding that business is complicated – but it continues.

Contributors:

This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
Please contact ComplexCountries to find out about their subscription packages.

How to use pricing to create an effective hedging program

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

In this article, we explore the links between pricing and creating an effective currency hedging strategy. We reveal how a simple PEG framework —Pricing, Exposure, Goals— can allow CFOs and treasurers to correctly define their FX goals, the type of exposure they need to collect and process, and the best hedging program for their business.

Pricing as a hedging mechanism

Transactional currency risk, it is often said, occurs between the moment an FX-denominated transaction is agreed upon and the moment it is settled in cash.

That’s OK, but what if the transaction was priced well before it was agreed, which is a realistic description of how things really work?

That’s why at Kantox, we developed the concept of pricing risk. pricing risk is the risk that between the moment an FX-driven price is set and the moment a transaction is agreed upon, a shift in the FX rate might impact budgeted profit margins.

Closely related to this is the idea that pricing is itself a hedging mechanism. Why? Because you can remove pricing risk by frequently updating your prices.

And that brings us to the topic of pricing parameters and hedging. 

Dynamic pricing

Let us start with dynamic pricing. There is a growing list of industries where dynamic pricing is becoming the norm: travel, chemical traders, hospitality, railways, entertainment, insurance, online advertisement, retail and even shipping.

This trend reflects the fall in transaction costs made possible by the availability of real-time data and the rise of geolocation services and payment apps.

Meanwhile, algorithms take into account supply and demand conditions, competitor pricing and other variables.

Two things need to be considered when it comes to dynamic pricing:

(a) prices are ‘FX-driven’; that is, an FX rate is systematically part of the pricing formula;

(b) prices are frequently updated, therefore leveraging the full capacity of pricing to act as a hedging mechanism. 

Other pricing models

Despite its growing popularity, dynamic pricing is not the only pricing mechanism out there. We can single out at least two other very significant models: 

1. Steady prices for individual campaigns/periods. Some businesses, like catalogue-based tour operators, keep prices stable for an entire campaign/budget period and set new prices at the start of the following period. Things to consider here:

(a) Prices are also FX-driven, just like in dynamic pricing.

(b) The pricing impact of the ‘cliff’, or a sharp FX rate fluctuation between two campaign/budget periods, is fully passed on to customers at the onset of a new period. Here too, pricing acts as a hedging mechanism, but not to the extent it does in dynamic pricing.

2. Steady prices for a set of campaigns/periods. Some firms need or simply desire to keep prices steady not only for one individual campaign/budget period but for a set of campaign/budget periods linked together. Things to consider:

(a) Prices are not FX-driven: the FX rate plays no role in pricing;

(b) The pricing impact of the ‘cliff’ cannot be passed on to customers at the onset of a new period. Pricing, quite obviously, is not a hedging mechanism in this case.

Putting it all together: the PEG framework: Pricing-Exposure-Goals

The PEG or Pricing – Exposure – Goals framework provides actionable clarity when discussing pricing and currency hedging in the context of cash flow hedging programs:

For firms with frequently updated FX-driven prices, the goal is to protect the dynamic pricing rate in all their transactions. The exposure to hedge is the company’s firm sales/purchase orders. The right program is a micro-hedging program for firm commitments.

For companies that keep steady prices during individual campaign/budget periods, the goal is to protect the campaign/budget rate. The exposure to hedge is the forecasted revenues and expenditures for that particular campaign. The right program is a combination of a static hedging program, conditional orders and a micro-hedging program for firm commitments. 

Finally, for firms that keep steady prices across a set of campaign/budget periods linked together, the goal is to smooth out the hedge rate over time. The exposure to hedge is a rolling forecast for a set of periods linked together. The right program is a layered hedging program. 

Currency Management Automation solutions allow you to reach all your goals, whatever the pricing parameters of your business.

The 3 Fundamental Treasury Concepts: Bank Relationships

29-11-2022 | Vasu Reddy | treasuryXL | LinkedIn |

The 3 fundamental treasury concepts being discussed currently include Working Capital Management, Bank Relationships and Treasury Transfer Pricing which are pivotal pillars for effectively and efficiently optimizing cash, liquidity,  funding and managing risk for any Treasury function to support the achievement of the organizations business objectives and strategy. In the second blog of a series of 3, Vasu Reddy explains the best practices and benefits of Bank Relationships.

Strong Bank relationships (including Central Banks) are key to operating successfully in any country- locally, regionally or Globally.

When selecting and maintaining bank relationships, it is key to include partners with strong track record including:

  • Strong Bank Credit rating  – BBB+ to  AA+
  • Strong Bank Balance sheet, assets size and Cash Reserves,
  • Strong Ethics, Governance, Compliance
  • Bank Geographical Footprint
  • Huge Product knowledge, expertise and offering
  • Strong Service capability and rapid response times
  • Competitive Pricing and transparency
  • Being a trusted advisor – including investment banking, FX, etc.
  • Advanced  technology and systems and Project support
  • Managing confidentiality of information and conflicts of interest
  • Strong Relationship with Central Bank for Advocation
  • Going above and beyond for client during drastic times– providing credit sufficient lines
  • Accepting Clients standardized documentation in different countries due to regional      relationship
  • Ease of doing business – bank account opening, KYC onboarding, Projects, system implementation,  integration with  ERP, TMS, RFP’s, RFQ’s , legal issues, etc.

More key considerations are:

– Size of Corporate/business

– Credit rating/balance sheet size

– Growth Plans – M&A, etc.

– # of bank relationships

-# of bank accounts

-# of Legal Entities

-Bank interaction, performance and evaluation

 

“Maintain a good central bank relationship is key”  Vasu Reddy

What are the benefits of good bank relationships?

  • Smooth Business operation with no disruption resulting in improved cash flow, profits and reduced costs
  • Management able to focus on business growth and sustainability
  • Minimal bank law compliance risks
  • Able to pivot easily during macro-economic cycles – surviving recessions, political risks, etc.

 

Thank you for reading!

 

Vasu Reddy

Corporate Treasury, Finance Executive

Recording Panel Discussion | Treasury Trends for 2023

28-11-2022 | treasuryXL | Nomentia | LinkedIn |

Recently, we had a panel discussion about a few major treasury trends for 2023 together with Nomentia and experts Pieter de Kiewit, Patrick Kunz, Niki van Zanten, and Huub Wevers. If you didn’t get the chance to attend the webinar, you can find the recording here.

During this interactive live discussion we covered some of the following topics:

  • Market and FX Risk management in current times of uncertainty.
  • Top treasury technologies to consider for 2023. Will APIs deliver their promises?
  • Building the bridge between Ecommerce and treasury.
  • The rapidly changing role of treasury to facilitate business success
  • Treasury technology visions beyond 2023.
Watch the recording

 

 

[WEBINAR] FRTB – Are Banks Ready To Be Compliant?

23-11-2022 | treasuryXL | Refinitiv | LinkedIn |

Join experts across the industry for this complimentary webinar to explore how to prepare for – and comply – with the Fundamental Review of the Trading Book (FRTB) regulation in 2023.

DETAILS:

  • Webinar: FRTB – are banks ready to be compliant?
  • Date: Tuesday, November 29
  • Time: 09:00 EST / 14:00 GMT / 15:00 CET
  • Speakers:
    • Hany Farag, Senior Director and Head of Risk Methodology and Analytics, CIBC
    • Fausto Marseglia, Head of Product Management, FRTB and Regulatory Propositions, Refinitiv, an LSEG Business
    • [Moderator] Lisa Regan, Head of Sales, EMEA, Enterprise Data, Refinitiv, an LSEG Business\
    • Volker Wellmann, Risk and Resource Manager at BNP Paribas, BNP Pariba



 

 

Register today

 

Why you need to automate swap execution

22-11-2022 | treasuryXL | Kantox | LinkedIn |

Do you struggle with having a perfect match between your currency hedging position and the cash settlement of the underlying commercial exposure? We’ll let you in on a secret: most treasurers and finance teams do. But how can you simplify this time-consuming and resource-intensive task? In this article, we show why you need to automate swap execution and how you can do it.

We reveal why this is an essential issue for treasurers, how it’s typically handled, and why automated swap execution can help finance teams play a more strategic role in the business. 

Setting the scene

Treasurers know that it is practically impossible to have a perfect match between the firm’s currency hedging position and the cash settlement of the underlying commercial exposure. That’s especially the case if those hedges were taken long before. This is why swapping is so essential.

Let us briefly see an example. If you have a ‘long’ USD forward position with a given value date and you need, say, 10% of that amount in cash right now, a swap agreement allows you to perform that adjustment.

With the ‘near leg’ of the swap, you buy the required amount of USD in the spot market while simultaneously selling —with the ‘far leg’ of the swap— the same amount of USD at the value date of the forward contract. And that’s how you adjust your firm’s hedging position.

Pain points: a resource-intensive activity

Swapping can be extremely time-consuming and resource-intensive, particularly if many transactions, currencies and liquidity providers are involved. We recently saw how a large European food producer was struggling mightily with manual swap execution, a dreadful situation faced by many, if not most, companies.

Among the most common pain points, we can cite the following three:

  • Operational risk. Many tasks are manually executed: retrieving incoming payments, selecting liquidity providers and confirming trades. The entire workflow relies on emails that circulate back and forth with spreadsheets carrying potential data input errors, copy & paste errors, formatting errors, and formula errors.
  • Lack of traceability. Lack of proper traceability hinders the process of assessing hedging performance, as swap legs are manually traced back to the corresponding forward contracts.
  • Risk of unethical behaviour. Understood as the risk that early mistakes that are not immediately reported may lead to severe losses down the road, it is prevalent throughout.

Traceability and automated swap execution

Traceability is when each element along the journey from FX-denominated entry to position to operation to payment has its own unique reference number. But how can we apply this concept to solve the problem of manual swap execution?

The answer is automated swap execution, a solution that is embedded in Currency Management Automation software. It relies on the perfect end-to-end traceability between the different ‘legs’ of a swap agreement and the original forward contract. Meanwhile, FX gains/losses and swap points are automatically calculated. It’s dead simple!

Swap automation is a powerful tool for the treasury team. At the company level, it opens the way to:

  • According to recent surveys, increasing the efficiency of treasury operations is the No. 1 expectation in tech for CFOs.
  • Using more currencies in the business to take advantage of the profit-margin enhancing possibilities of ‘embracing currencies’.
  • Taking a concrete step toward the ‘digital treasury’ is a concern voiced by many CFOs and treasurers.

At a personal level, in terms of the daily workload of members of the treasury team, automated swap execution means:

  • More time to concentrate on high-value-adding tasks such as fine-tuning and improving cash flow forecasts.
  • Reduced stress levels.
  • Increased productivity at work.

And that’s no small achievement!