This call took place five days after FTX filed for bankruptcy. However our discussion did not dwell on crypto as an investment (We haven’t found a treasurer who would). The interest for treasurers is to help their companies understand the business opportunities of the metaverse, and that isn’t going away.
According to Gartner,’ [https://www.gartner.com/en/articles/what-is-a-metaverse] by 2026, 25% of people will spend at least one hour per day in a metaverse for work, shopping, education, social media and/or entertainment’, and…’A metaverse is not device-independent, nor owned by a single vendor. It is an independent virtual economy, enabled by digital currencies and non-fungible tokens (NFTs).’
So it’s no surprise that many companies are developing strategies to capitalise on what could be a massive business opportunity. Participants in this call comprised treasurers representing companies at different stages of this journey, all facing the challenge that the regulatory and financial infrastructure available is at an early stage of evolution.
About half of the participants are still investigating the use of crypto and exploring how it works in case it does evolve within their businesses, but still not necessarily wanting to accept crypto or handle crypto within treasury operations.
Risk management to enable safe use in Corporate Treasury remains paramount and it isn’t easy.
We are seeing continued evolution around the NFT space and using crypto for settlement. But it continues to be quite limited.
Accounting requirements for how crypto currencies are handled are still not clear and not necessarily sustainable for the future. Regulations are going to evolve.
It is fascinating to hear, for the first time, crypto working capital is being used to match crypto receivables to payables in certain types of crypto currencies, e.g. Ether.
In the last 12 months companies have started to buy land in the metaverse in order to understand how it works as a marketing tool.
Selecting crypto currency platforms is challenging and KYC with some is a (reassuringly) painful experience. The providers discussed in this report include: Etherium, Coinbase, Mt Pelerin, Bit Panda and Anchorage.
For the most part, banks are watching the space and have yet to come up with solutions for corporates and CBDCs are at an early stage, but one thing we can be sure of is that there is a lot more to come on this topic.
Crypto has clearly not gone away for corporate treasurers and I’m certain we’ll see further uses going forward. There is a huge amount of detail in this report, which is essential reading for any treasurer wishing to understand the challenges or benchmark their processes.
Acces to the full report is only available to subscribers to “Treasury Practice”. If you would like to request a subscription to this topic, please message [email protected].
https://treasuryxl.com/wp-content/uploads/2023/02/Kopie-van-cxc-200.png200200treasuryXLhttps://treasuryxl.com/wp-content/uploads/2018/07/treasuryXL-logo-300x56.pngtreasuryXL2023-02-02 07:00:122023-02-01 12:24:50Treasury Policies & Processes for Crypto Transactions
A recent white paper from Refinitiv – produced in collaboration with global consultancy, FINTRAIL – discusses the key elements currently shaping the evolving fintech space and the key trends that will be shaping the fintech landscape in 2023.
New findings from Refinitiv and FINTRAIL, based on interviews with experts from different fintechs across a range of geographies, have identified five key factors that are shaping fintechs today.
The white paper identified that the primary factors shaping fintech in 2022 were technology, data, talent, governance and efficiency, and it will continue in 2023.
Fintechs also have to keep tight control of the anti-money laundering (AML) processes to protect against widespread illicit activity and ensure regulatory compliance.
The fintech industry is one of dynamism and innovation; a space where agile players harness new technology and challenge the status quo of the traditional financial services industry every day.
Undoubtedly, this delivers substantial opportunity for those involved in the sector, but at the same time, financial criminals are similarly leveraging technology and using advancements to devise new ways to further their illicit activities.
In this fast-paced space, characterised by evolution and a growing financial crime threat, what key elements are at play and what factors have shaped and defined the industry in 2022, and will continue to do so in 2023?
Findings from Refinitiv and FINTRAIL, based on interviews with experts from different fintechs across a range of geographies, have identified five key factors that are shaping fintechs today.
Five factors shaping fintechs today
Technology
The fintechs we spoke to stress that the right technology can make all the difference when it comes to managing financial crime, with some describing machine learning and artificial intelligence (AI) as “indispensable tools”.
This view is in line with the recommendations of the Financial Action Task Force (FATF).
Leading technology needs trusted, comprehensive data, but fintechs highlight that striking a balance is key. Requiring too much information can damage the customer experience, while not enough leaves fintechs vulnerable to financial crime.
Collecting the right data – and the right amount of data – and then building a complete picture of risk is key to the combined fintech goals of maximising efficiency, keeping customers happy and protecting against financial crime.
Talent
Technology and data are critical in managing financial crime threats, but a third and equally critical element is invaluable human expertise. The right people across difference disciplines can make all the difference.
Those we interviewed said that engineers and data scientists are key, and further that the compliance profession is considered “recession-proof” – upskilling compliance team members should be a key priority for those in the sector.
Interviewees also highlighted that fintechs should concentrate on attracting and retaining key staff, but should also consider outsourced solutions for additional support and expertise.
Governance
Effective governance is a key consideration for fintechs as they grow and evolve. The nature of the industry and the rapid growth trajectories often followed by sector participants mean that effective AML controls and good governance need due attention.
Plus, fintechs agree that governance models should not be static – they need to adapt over time.
Efficiency
Efficiencies are increasing in the industry, with new technology now enabling fintechs to integrate specific data points alongside behavioural biometrics to help them spot suspicious activity.
For example, device identification data can identify if an account is accessed from a new device and this can be compared to a client’s history.
To further boost efficiencies, fintechs say that adopting a dynamic approach to risk is key and avoids wasting often scarce resources.
Discover more about our KYC and anti-money laundering solutions for the fintech industry
Keeping pace with changes in fintech
Fintechs can expect these top trends to continue in the year ahead and should especially take note of the powerful combination of tech, data and human expertise that are not only shaping the sector, but can enable better compliance and good governance, while boosting efficiencies.
As the industry continues to grow and develop at pace, many players are rightly concerned with ensuring an engaging and positive customer experience that offers connectivity and seamless interaction. They must, however, also keep tight control of the AML processes they will need to protect against widespread illicit activity and ensure regulatory compliance.
If we look back at the economic landscape of last year, treasurers and CFOs have been dealing with risky scenarios for a while. But is the future as dark as some say? Our latest episode of CurrencyCast featured the treasury trends for 2023. In this article, we will take a deep dive into those trends and give you some tips on how to tackle the challenges in this volatile landscape.
Treasury trends for 2023
Consultants and pundits are busy laying out scary scenarios for 2023. However, the future is uncertain so let’s not waste time in futurology trying to predict what’s coming.
Instead, we can focus on understanding the treasury trends of 2023. In this article, we’ll analyse those trends with a focus on currency management and give you actionable tips on how to handle any hurdles ahead.
CFOs and corporate treasurers need to be well prepared for the upcoming challenges and opportunities as they manage currencies. The top five priorities in the corporate treasury space for 2023 are:
In the past year, the financial markets have seen high levels of FX volatility and an unstable economy that seems to point towards a recession. Trends of high inflation, banks’ rising interest rates, political instability, and more will remain in the new year.
Hence why, it is fair to say that currency managers need to be well-prepared to face interrelated risks affecting FX rates. Companies dealing with foreign currencies will have difficulties accurately forecasting cash flows.
However, there is no reason to panic yet. There are a few strategies that corporate finance professionals can implement to tackle FX volatility; we will explain them later.
Shifting interest rate differentials
Shifting interest rate differentials are a likely scenario in 2023 as central banks act to tame inflation, each at its own pace. The good news is that companies can optimise such interest rate differentials across the entire FX workflow. Here are a couple of examples:
– With favourable forward points, pricing with the forward rate improves the firm’s competitive position without hurting budgeted profit margins.
– With unfavourable forward points, pricing with the forward rate helps managers avoid losses on carry and the temptation of excessive pricing markups.
– Finally, the cost of hedging can be lowered by delaying hedging execution with the help of automated conditional FX orders.
.
Liquidity management
In addition, the current emphasis on strong liquidity management will persist well into 2023. Liquidity management allows the treasury team to have a wider view of the company’s resources and be financially agile.
This will give any treasury professional the required accurate insights on the cash projections. And ultimately, help the business be prepared for potential liquidity risks that may arise.
Cash flow visibility
Avoiding less-than-stellar cash flow visibility will be top of mind for treasurers in 2023. As economic cycles could be disrupted again, companies need to be able to get ahead of the curve and reduce deviations in their cash flow projections.
However, we believe that the importance of having accurate cash flow forecasts is somewhat overstated, at least when it comes to currency risk management.
To understand why this is so, the treasury team should consider how the different cash flow hedging programs deal with this concern:
– In firms with dynamic prices, forecasting accuracy is not much of a concern because firm sales/purchase orders have a very high occurrence probability.
– In firms with steady prices across several campaign/budget periods, layered hedging programs build the hedge rate in advance instead of protecting an FX rate.
– In firms with steady prices for a single campaign/budget period, conditional orders to protect the budget rate provide managers with time to update their forecasts.
For better cash flow visibility in the new year, companies will need to consider their ability to implement hedging programs that best suit their needs.
Automation
In 2023, the role of the corporate treasurer will require professionals to improve their technological skills. The traditional treasury function is shifting towards an automated digital infrastructure that enables increased efficiency and faster processes.
To manage currency risk in the new year, treasurers will need to move away from siloed systems and wasting time on manual tasks. Instead, they need to look for a solution that is able to automate the entire FX workflow.
Tools that are able to connect, via APIs, to their treasury management system and other data sources, for updated reports that give accurate insights into their FX exposure.
Facing the challenges
Now you know the treasury trends that will be dominating 2023 for corporate treasurers. But we also want to give you some tips on how currency managers should act in the face of such challenges.
As we like to emphasise at Kantox, currency management is much more than currency risk management. And currency risk management, in turn, is more than just the act of executing a hedge. Let us see this in more detail.
Consider the case of automated conditional orders to protect a budget rate. To the extent that the underlying levels are not hit, no trades are executed. Yet, you are stillactively managing your firm’s exposure to currency risk.
Delaying hedges may lead to netting opportunities thatultimately result inless, not more, hedging transactions. The results are:
Less trading costs
Savings on the carry in the event of unfavourable forward points
Less cash immediately set aside for collateral requirements
The right approach for 2023
Pundits predicting a catastrophic 2023 may turn out to be right. Then again, they might not. In any case, the priority for currency managers is to take a holistic view of currency management that allows them to:
Embrace the entire FX workflow
Avoid silos and have commercial and finance teams work hand in hand
Take advantage of the profit margin-enhancing opportunities offered by currencies
As you have seen, corporate treasurers will need to be well-prepared for all the interrelated risks of the turbulent economic landscape. With the help of the right automation tools, the treasury function can have a strong currency management strategy that helps them storm the weather outside.
Kantox is the currency management automation solution that covers the entire FX workflow so you can improve your profit margins and leverage foreign currencies.
Book a free strategy session with our currency management specialists to learn more.
https://treasuryxl.com/wp-content/uploads/2023/01/CC-1-200.png200200treasuryXLhttps://treasuryxl.com/wp-content/uploads/2018/07/treasuryXL-logo-300x56.pngtreasuryXL2023-01-26 16:23:342023-03-03 12:07:295 Treasury Trends for 2023: Managing Currencies in an Age of Uncertainty
ComplexCountries reports detail how corporate treasurers approach challenges in complex countries, across associated treasury processes and how they adapt to economic and regulatory changes.
Their reports cover a wide range of topics associated with treasury processes in these countries, and how they are impacted by economic and regulatory changes. This includes how corporate treasurers approach currency risk management, compliance with local regulations, and maintaining cash and liquidity in the face of political and economic instability. The goal is to help treasurers navigate these challenges and protect their company’s financial position.
Find below some of the free reports detailing complex country challenges for treasurers
Please log in on the website of ComplexCountries. Or contact ComplexCountries to find out about their subscription packages.
https://treasuryxl.com/wp-content/uploads/2023/01/cxc-200.png200200treasuryXLhttps://treasuryxl.com/wp-content/uploads/2018/07/treasuryXL-logo-300x56.pngtreasuryXL2023-01-26 07:00:472023-01-26 09:31:38What is possible in Complex Countries for Treasury?
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.
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.
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.
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.
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.
– 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.
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.
https://treasuryxl.com/wp-content/uploads/2023/01/blog-refinitiv-200.png200200treasuryXLhttps://treasuryxl.com/wp-content/uploads/2018/07/treasuryXL-logo-300x56.pngtreasuryXL2023-01-12 07:00:092023-01-11 11:09:58How can fintech rise to the challenge of AML compliance?
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.
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.
https://treasuryxl.com/wp-content/uploads/2022/12/kantox-200-27e.png200200treasuryXLhttps://treasuryxl.com/wp-content/uploads/2018/07/treasuryXL-logo-300x56.pngtreasuryXL2022-12-27 07:00:042023-03-03 12:08:19A guide to conditional FX orders
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.
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.
https://treasuryxl.com/wp-content/uploads/2022/12/QA-vp.png200200treasuryXLhttps://treasuryxl.com/wp-content/uploads/2018/07/treasuryXL-logo-300x56.pngtreasuryXL2022-12-22 07:00:272022-12-22 08:57:51Q&A with German Karaivanov | GTreasury Report
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.
We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
Essential Website Cookies
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refusing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
Google Analytics Cookies
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visit to our site you can disable tracking in your browser here:
Other external services
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
Google Webfont Settings:
Google Map Settings:
Google reCaptcha Settings:
Vimeo and Youtube video embeds:
Other cookies
The following cookies are also needed - You can choose if you want to allow them:
Privacy Policy
You can read about our cookies and privacy settings in detail on our Privacy Policy Page.
