Tag Archive for: education

How does a FX spot transaction work?

| 14-11-2017 | treasuryXL |

Every day we enter into transactions in our own domestic market. Goods are priced in our own currency and we settle purchases in our own currency. Here in the Netherlands that means everything is priced and settled in Euro’s. It is a clear and concise system – of course we might argue about the price of goods, but that is another matter. Now consider what happens when we sell our goods to a counterparty domiciled in a different country – we shall assume from the United States. We would prefer to invoice in EUR as this is our domestic currency, whilst our counterparty would prefer to settle in USD. This makes sense as in both instances neither of us would be exposed to fluctuations in the exchange rate between the EUR and USD.

There are 3 basic choices to trade with a foreign based counterparty:

  • Price in our currency, but run the risk that they will not trade with us
  • Price in their currency, win the trade but do nothing about the risk
  • Price in their currency, but adjust our price for the perceived FX risk and sell their currency for our currency as soon as the deal is closed

As we are keen to expand our export markets we agree to charging the buyer in USD, but what price should we charge in USD? By accepting payment in USD we are now assuming a foreign exchange risk as the value of the USD could fall in relationship to the EUR before we have sold the USD for EUR. If the fall was large it could take away all our profit from the original transaction, possibly even leading to a loss on the order.

We must therefore enter into a transaction to sell USD and to receive EUR to book our profit and to neutralize the FX risk. This leads us into the world of Foreign Exchange (FX) trading.

In FX trading quotations are always shown for a pair of currencies such as EUR/USD – but what does this mean?

  • The first currency – EUR – is called the base currency
  • The second currency – USD – is called the quoted currency
  • The spot rate is shown as 1.1595
  • This means that every unit of the base currency is equal to 1.1595 units of the quoted currency

If our order was for EUR 100.000,00 then the USD equivalent would be USD 115.950,00

In this example it is the USD price that fluctuates as it is the quoted currency, but this does not mean that fluctuations are only caused by changes in the value of USD. The value can also fluctuate because of changes in the value of EUR – even though this is the base currency.

Most major currency pairs are quoted to 4 decimal places – with the 3rd and 4th places being called “pips”. Pips are the expression traders use to describe their profit or their market spread.

If we traded EUR 1 million into USD, we would have an equivalent of USD 1.159.500,00

The value of 1 “pip” would be USD 100,00

When we approach a bank for a quotation in spot EUR/USD, the bank quotes a 2-way price such as 1.1592/97

The lower price – 1.1592 – represents the bank’s bid price. This is the price at which the bank buys EUR and sells USD.

The higher price – 1.1597 – represents the bank’s offer price. This is the price that at which the bank sells EUR and buys USD.

If the bank quoted this price into the market and one clients hit the bid at 1.1592 and another took the offer at 1.1597, both in EUR 1 million, then the bank would book a profit of USD 500,00 – or a profit of 5 pips on EUR 1 million.

FX is one of the largest markets in the world – daily turnover exceeds USD 5 trillion per day. That means 5 followed by 12 zeros – every working day.

With such a large daily turnover, prices are constantly changing. The market consists of price makers (who make the prices), price takers (who take the prices), intermediaries like brokers who assist the market by transmitting the prices and placing orders, and clients who place orders at specific levels. Prices are only valid for a few seconds before they change either because the market has traded on the quoted price or a new order replaces the existing price.

When you trade on the quoted price then you have entered into a binding contract with the counterparty. Settlement is normally 2 working days after the trade date. If you sell USD then you must ensure your counterparty receives the agreed USD amount on their account in 2 working days, and you receive the agreed EUR amount on your account in 2 working days.

Trade settlement is very important and means that you must have a complete operational procedure in placing to effect settlement, establish positions, agree counterparties, have trading limits etc.

Traditionally spot FX trades were done with banks. Now trades can also be transacted via electronic exchanges, electronic brokers etc. It is always important to know who your counterparty is – it could be that your internal operational control prohibits you from trading with specific counterparties.

Most major currencies can be traded against each other without restrictions such as exchange control. Therefore, currency pairings can be found everywhere such as USD/JPY and EUR/GBP and ZAR/CHF.

Spot FX transactions are not traded on listed exchanges; these trades occur “over the counter” with a clearly identifiable counterparty.

 

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

What do you want to know about Treasury?

| 30-10-2017 | treasuryXL |

It has always been our mission to promote Treasury as a profession and to increase the awareness of Treasury within business. Currently there are more education choices for students to study and appreciate Treasury, but we still felt there was a gap – knowledge for anyone who was genuinely interested in learning more about Treasury.

With this in mind, we decided to proactively launch a new initiative – Treasury for non-treasurers. We consider this as our call to action.

Who are these people?

These can be students; career professionals in other disciplines who are curious; people in the finance industry who are considering either a career change or specializing in the field of Treasury; anyone who just wants to understand what a treasurer does on a day-to-day basis.

What is our aim?

Having always written for the professional, we were confronted with the challenge of getting our information across to people who do not have in depth knowledge. After a lot of research and analysis we decided that the best approach would be to attempt to simply explain the workings of Treasury, without going into too many technical details.

What will be in our articles?

With our knowledge, that relies also on the invaluable input of our expert community, we are considering a framework encompassing such topics as:

  • Treasury department – roles and responsibilities
  • Financial products for trading – Spot FX, Forwards, Options, Futures
  • Financial products for liquidity – deposits, loans, commercial paper
  • Financial products for financing – private placements, bond issues, equity
  • Cash flow forecasting – models and procedures
  • Working Capital Management – payables, receivables, inventory
  • Risk management – interest rate, FX, commodity, credit, liquidity, operational
  • Fintech – Treasury Management Systems, inhouse, exchanges
  • Cash concentration – physical sweeps, notional pooling, overlay structures
  • Education – study, on-line courses, sources of data
  • Economic and political – inflation, unemployment, leading and lagging indicators

This is a comprehensive and challenging list – but not impossible – which will, hopefully, increase people’s understanding and perception of the treasury function.

What we need?

Feedback – and plenty of it please.

These articles will not be written chronologically but, if there are certain topics that you wish to have explained then please do not hesitate to contact us. It is only with your input that we can truly create a service to meet your demands. We think we know what you would like to know, but only you can tell us!

What next?

Hopefully, when the series is a success, we can consider publishing e-books. Credit would always be given to those they have taken their time and effort to impart their knowledge and wisdom to others.

Who are you?

Please feel free to contact us and let us know more about you:

  • What is your profession/vocation?
  • What industry do you work in?
  • What interests you about Treasury?
  • Are you interested in making career choices?
  • Need help for your company, but are too small to have in-house expertise?
  • What do you think about the finance industry?
  • What do you think about the EURO?
  • How about Brexit?

So, come back regularly and watch this space!!

Tell me and I’ll forget. Show me, and I may not remember. Involve me, and I’ll understand.

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Voorlichtingsavond PGO Treasury Management & Corporate Finance

| 20-10-2017 | Robert Dekker |

Logo - VU AmsterdamOp donderdag 9 november 2017 vindt de voorlichtingsavond voor de Postgraduate opleidingen, waaronder de opleiding Treasury Management & Corporate Finance, van de School of Business and Economics van de Vrije Universiteit Amsterdam plaats.

Deze voorlichtingsavond is bedoeld voor geïnteresseerden die per 1 februari 2018 willen instromen. Dat kan, omdat wij de opleiding modulair georganiseerd hebben, dat ons in staat stelt 2 keer per jaar studenten te laten instromen namelijkper 1 september en per 1 februari.

Een ieder die geïnteresseerd is in de opleiding is van harte welkom om een indruk van de opleiding te krijgen en kennis te maken met de programmadirectie, docenten en (ex-)studenten.

De ontvangst is om 18.00 uur in de Foyer van de Agorazalen. Vanaf 18.30 uur vinden de voorlichtingsrondes plaats. Om 20.30 uur begint de voorlichting voor de opleiding Treasury Management & Corporate Finance. Na afloop is er gelegenheid om vragen te stellen.

Programma
18.00 uur > Ontvangst met koffie/thee en broodjes
18.30 uur > Voorlichtingsronde 1
19.30 uur > Voorlichtingsronde 2
20.30 uur > Voorlichtingsronde 3 – Treasury Management & Corporate Finance (RT)
Na afloop > Gelegenheid tot vragen stellen

Locatie
Vrije Universiteit Amsterdam, Agorazalen, De Boelelaan 1105 (hoofdgebouw, 3e etage)

Aanmelden en informatie
Wij weten graag vooraf op hoeveel mensen we kunnen rekenen. Aanmelden kan via VU PGO voorlichtingsavond

Voor vragen/contact
Nicole Lijs
Postgraduate opleiding Treasury Management & Corporate Finance
020-598 2171/ [email protected]

Robert Dekker – Program director postgraduate program treasury & corporate finance at the VU University

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Introduction core team Treasurer Development

| 19-10-2017 | treasuryXL  | Treasurer Development |

Earlier we informed you about the Treasurer Development initiative. The members of the core team of Treasurer Development aim to contribute to raising the professional level of corporate treasury and increase acceptance and recognition of corporate treasury. Starting point for them is the treasurer as a person.

 

In the kick off meeting a core team was created; these are the members:

  • Janneke Nonkes, former group treasurer and coach
  • Robert Dekker, manager of the post graduate Register Treasurer program at the Free University in Amsterdam and treasury consultant at KPMG
  • Frans Boumans, responsible for the minor treasury management program at the University of Applied Sciences in Utrecht and former banker
  • Pieter de Kiewit, recruitment consultant and owner of Treasurer Search

All core team members work independently in this initiative. They do not represent each other or treasuryXL as a core team member. They aim to inspire, inform and deliver positive criticism. The opinions expressed by a member of the core team are attributed to that person and these opinions are independent and not necessarily shared and/or endorsed by all the other members. treasuryXL  is the communication platform for Treasurer Development. Blogs, discussions, round table meetings, curriculum build-up and adviser are all results that can and will be the result of Treasurer Development.

First initiative coming from Treasurer Development is a cooperation between Frans Boumans and treasuryXL. All of us will start blogging on related topics. Janneke and Pieter will develop a free of charge telephone quick scan in which treasurers can brainstorm about their career development. Robert will inform you shortly about curriculum developments in the Register Treasurer program. Both the Hogeschool Utrecht and the Vrije Universiteit will want to brainstorm with you about guest lecturing, internships and graduation projects.

So far, the first responses on this initiative are very positive. We are open for suggestions and look forward to informing you further.

treasuryXL

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Microsoft Coco Framework: blockchain game changer?

|18-9-2017 | Carlo de Meijer | treasuryXL

Microsoft recently announced the introduction of the Coco (or Confidential Consortium) Framework. A ‘first of its kind innovation’ as they named it, designed to work with any ledger or operating system. CoCo is a blockchain protocol technology aimed to make it easier to build enterprise networks quicker and more secure using any distributed ledger. Our expert Carlo de Meijer explains the relevance of the new technology for confidential consortiums in an article on LinkedIn.
We present a short summary of the article.

What’s the issue?

Corporate interest in blockchains is firmly growing. Embracing this innovative technology however remains a big hurdle for most enterprises, as there is no unified approach in this regard. As a result they have difficulties integrating in into their systems.

There are many different blockchains, but major blockchains are not designed to be interoperable with one another. As enterprises look to apply blockchain technology to meet their business needs, they’ve come to realize that many existing blockchain protocols fail to meet key business requirements. The problem is that most blockchain protocols today require complex development techniques to meet the operational and security needs of enterprises.
Issues like performance, confidentiality of data, governance and required processing power are still major stumbling blocks for using blockchains. One of the other key enterprise blockchain problems is that of access controls for transactions.

What is the Coco Framework?

The Coco Framework is an open-source Ethereum-based protocol, designed to provide high-scale and confidential blockchain networks for enterprise purposes. It should be seen as the foundation of blockchain for the enterprise.

It is designed to work with any ledger or operating system. It can connect existing blockchains with one another. The Framework is targeted especially for consortiums where nodes and actors can be controlled.

The Coco Framework is built to address some of the current limitations of enterprise blockchain. It is meant to reduce the complexity currently associated with blockchain protocol technology and make it easier for enterprises to adopt blockchain technology. This by increasing transaction speeds, offering confidentiality and simplify governance decisions. The ultimate goal is to boost widespread adoption, particularly among enterprises, of blockchain technology.

The CoCo Framework is not a decentralised solution in this regard as participants will still be able to exert a high degree of control over their blockchain. CoCo is more of a distributed ledger-oriented approach than a decentralised technology.

The design of the CoCo Framework

Microsoft is developing the CoCo Framework in cooperation with Intel, JP Morgan and Ethereum. The Coco platform is designed specifically for confidential consortiums, through the introduction of a trusted execution environment (TEE), advanced cryptography and innovative blockchain-focused consensus mechanisms “to open up new blockchain enabled scenarios across industries”.

The Coco Framework needs a trusted execution environment where nodes and actors are explicitly declared and controlled because it relies on shared trust between machines running modified blockchain software in order to avoid the need for transaction verification. With these TEEs a network of trusted enclaves can be build that all agree on the ledger and Coco code they are running. Because it’s an open framework, it can also support other compatible TEEs as they become available.

The idea is that enterprises may place their blockchain code in a trusted area, which is established through integrated tools such as Intel’s Software Guard Extensions (SGX) or Windows Virtual Secure Mode (VSM). These are hardware-based security technologies that the CoCo Framework uses to improve the throughput, efficiency and privacy of the blockchain.

Compatibility

The CoCo Framework is designed to integrate with a wide range of blockchains and distributed ledgers. It is meant to provide the infrastructural underpinnings for the growing number of such ledgers that are emerging from different vendors and groups. Although CoCo is not an actual ledger, it will help other companies with established blockchains to come together, link with each other and built large networks.

Problems to solve

Despite taking a more centralised approach there are many benefits to embracing the the CoCo Framework. When implemented into blockchain networks and processed in a trusted environment, allowing for a “simplified’ consensus mechanism” may solve the various privacy, speed and governance issues for commercial adoption by corporates. At the same time, ”they will not lack in security and immutability”, which are two of the driving factors behind blockchain technology as a whole.

According to the Coco Framework White Paper, these “enterprise-ready trusted blockchains networks” that all agree on the ledger and the CoCo code they are running, will deliver:

  • Throughput and latency approaching database speeds.
  • Richer, more flexible, business-specific confidentiality models.
  • Network policy management through distributed governance.
  • Support for non-deterministic transactions.
  • Reduced energy consumption.

When to start?

According to Microsoft, the company has now started exploring the CoCo Framework’s potential across different industries, such as retail, supply chain and financial services.

Microsoft plans to make the Coco Framework available as an open source software project by 2018. It will be posted to and available on Github.

You can find more details about CoCo in Carlo de Meijer’s article on LinkedIn.

 

Carlo de Meijer

Economist and researcher

 

 


More articles about blockchain technology from Carlo de Meijer:

 

Introduction of a new initiative: Treasurer Development

| 1-9-2017 | treasuryXL |

Already over a year treasuryXL facilitates information exchange about corporate treasury. Contributions are, amongst others, about the development of the treasurer as a person. Due to the improved economy we notice a rising interest in this topic. Education, competence development and labour market are the most obvious examples. This is why we start the Treasurer Development  initiative.

Treasury education

In treasury education we see a rising interest from universities (also of applied science) which results in young graduates with treasury expertise. Both courses with certifications, like RT, ACT or CTP, are discussed as well as compact, result oriented trainings. Especially quick knowledge about FX and risk is in demand. The number of on-line trainings is quickly rising.

The ambition of many treasurers to have a bigger business impact results in a higher demand for training and coaching. Skills you do not learn in class. Questions like “what communication style works with an average and my CFO” or “how do I convince colleagues in an operating company to change their working methods” deserve a tailor made approach.

The labour market is tilting, the number of vacancies is rising. The way employers and employees find each other has changed over the last decade. Social media have a huge impact. Candidates do not only think about the next step but also about their career as a whole and the place their job has in life.

Treasurer Development Initiative

From this perspective a small group of professionals with relevant expertise came together to start the Treasurer Development Initiative. Questions like “how can we raise the professional level of corporate treasury and increase its impact” and “how can we introduce treasury in places where it has an added value”  will be considered from the perspective of the professional.

In our next blog we will introduce the group and inform you about first plans. If you want to contribute, please let us know.

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Minor Treasury Management at Hogeschool Utrecht increasingly successful

| 15-8-2017 | Pieter de Kiewit | treasuryXL |

In July 2017 our expert Pieter de Kiewit wrote an interesting article about the minor treasury managment of Hogeschool Utrecht (University of Applied Sciences).
Hogeschool Utrecht started with this program three years ago and Pieter had been asked by Frans Boumans, lecturer and researcher at Hogeschool Utrecht,  to contribute to create the curriculum. Pieter also assisted in finding both guest lecturers and companies providing internships. He will give a presentation to students about labour market opportunities for treasury experts on September 20th, 2017. In his article Pieter continues:

Programs like these do exist at universities in Europe and other countries. The university of Chicago has a strong reputation and we recruited two candidates from France with an extensive academic treasury curriculum. In the Netherlands the Register Treasurers post graduate program is the obvious academic way to go for a treasurer. You can only enter with experience and a degree. Graduating at master level in treasury in the Netherlands is not (yet?) organised.

By now, the Hogeschool Utrecht program has more applicants than seats. Students, not only from Utrecht, but also from other cities enroll. Their backgrounds vary from accounting, audit to business control. They find positions in SMEs, bigger corporates and the financial services industry. Recently Treasurer Search found a permanent position for a graduate with a treasury minor (again). Before we did not recruit graduates as our focus did not match the Dutch educational system. Graduates with treasury expertise were hardly available.

As from September we will continue our cooperation. Together with the people of treasuryXL we will create a brief survey in order to find out what is “hot in corporate treasury”. The results of this survey will be used to have student write papers. Interesting stuff! If you want to contribute or know more about this program you can contact Frans directly ([email protected]) or through Treasurer Search. The structure is set but for good input there is always room.

I hope all this is the preparation for an academic treasury track in The Netherlands. Time will tell.

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

More articles of this author:

Fintech recruitment considerations

Consider a treasury intern

If you are not a treasurer with the ambition of a dentist

Banker to corporate treasury transfer – A topic as relevant as ever

 

Banken en Financiële Markten in Vogelvlucht – Boek en e-learning voor specialisten zonder financiële achtergrond

| 21-7-2017 | Michiel van den Broek |

 

Sinds de jaren ’80 heeft er een ongekende schaalvergroting plaatsgevonden in de financiële sector. Door deze schaalvergroting hebben banken zich ontwikkeld tot gigantische financiële supermarkten die een zeer uitgebreid aantal financiële diensten en producten aanbieden. Banken zijn tegenwoordig IT-bedrijven waar een grote groep specialisten werkt met beperkte financiële vakkennis.

 

 

Mijn boek ‘Banken en Financiële Markten in Vogelvlucht’ geeft een helder overzicht ter introductie in de complexe wereld van banken en financiële markten. Bij het boek is een toegankelijke e-learning training beschikbaar met multiple choice vragen en een aantal video’s.

De combinatie van boek met e-learning biedt een efficiënte opleiding met basiskennis over de kernactiviteiten van banken, de verschillende bankactiviteiten en soorten banken, de oorzaak van de financiële crisis van 2008 en de ‘Bazelse Akkoorden’ waarop het toezicht van centrale banken is gebaseerd. Tevens bevat het een overzicht van de verschillende activiteiten op financiële markten, zoals de motivatie om bepaalde soorten financiële (derivate) producten te verhandelen, de prijsvorming en organisatie van de handel van deze producten. Ook de actuele onderwerpen risicomanagement en compliance komen aan de orde aan de hand van een aantal praktijkvoorbeelden van calamiteiten, zoals de problemen met MKB-rentswaps en de onbevoegde handelsactiviteiten van zogenaamde ‘rogue traders’, waaronder Barings Bank en woningbouwcorporatie Vestia.

Het boek is verkrijgbaar voor €25, toegang tot de e-learning kost €95.

Voor het boek en de e-learning kunt u mailen naar [email protected]

Een demo van de e-learning kunt u vinden op FTH.

Over de auteur: na mijn bedrijfseconomische studie heb ik vanaf 1990 gewerkt in de financiële sector. Sinds 2005 geef ik trainingen om ‘complexe’ financiële onderwerpen toegankelijk te maken voor professionals zonder economische of financiële opleiding.

 

Michiel van den Broek

Owner of Hecht Consult

Trade Finance – funding your imports and exports

|28-6-2017 | Vincenzo Masile | treasuryXL |

 

You might visit this site, being a treasury professional with years of experience in the field. However you could also be a student or a businessman wanting to know more details on the subject, or a reader in general, eager to learn something new. The ‘Treasury for non-treasurers’ series is for readers who want to understand what treasury is all about. Our expert Vincenzo Masile tells us more about trade finance products.

 

Trade finance instruments

International and domestic trade is highly complex and involves a web of intricate risks. Trade finance instruments are available to deliver fast, efficient, reliable and comprehensive solutions for every stage of a company’s trade value chain to support their foreign trade activities.
Trade finance products can be combined and shaped into a custom-built product that helps reduce company’s risks and will enable the business to flourish.

Innovative tailored short, medium and long-term trade finance solutions enable banks to meet their corporate and financial institutions client’s global import and export needs in a timely, efficient, risk adverse manner.
Trade finance products include letters of credit, documentary collections and bank guarantees. With a letter of credit (also known as a documentary credit), the buyer’s bank guarantees payment to the seller if certain criteria are met. Documentary collections, just as letters of credit, reduce the payment risks on international trade transactions, and with a bank guarantee company obligations to third parties are ensured. All these products offer security and protection against risks if an international trade transaction does not go as planned.

Funding and security

Importers and exporters can also use a letter of credit to obtain financing. An exporter, for instance, can obtain funding from his local bank to manufacture the goods as this bank is assured that payment will follow when the documents are presented under the credit.

In summary, it is not difficult to see the potential complexity of the arrangements on offer and the variety of ways in which they can be beneficial to a company. It is paramount, however, to work with a bank that fully understands the financial instruments available and their protocols and applicability in the overseas markets. Given this, trade finance and cash management are powerful tools for business growth and momentum.

Vincenzo Masile

Treasury Expert/Credit Risk Manager

 

 

 

Succesful breakfast session at Proferus

|21-6-2017 | Proferus | treasuryXL | Sponsored content |

We reported earlier that Proferus BV, Amsterdam organised a breakfast session, the first of a series, dedicated to CFOs, Senior Cash Managers and Treasures, this time focusing on Cash Flow Forecasting. The session has taken place yesterday and we want to share a short impression with you.

In their first session Proferus focussed on sharing best practices aound the topics cash forecasting strategies, direct vs indirect approach, the need for cash flow forecasting and forecasting software from CashForce. Nicolas Christiaen,  founder of CashForce gave real life examples of how CashForce is deployed to help companies efficiently deploy cash force forecasting for treasury management.

During the meeting there was a livley discussion about the need of cash flow forecasts and the difference between the direct and indirect method. Ideas were shared as well as experiences and practical examples. The presentation of the cash forecasting system of Cashforce by Nicolas Christiaen was well received and very interesting.

The breakfast session had a good attendance and positive reactions! Proferus already started to plan and organize the next meeting!

If you want to know more about the breakfast session you can download their presentation: [button url=”https://www.treasuryxl.com/wp-content/uploads/2017/06/Presentatie-liquiditeitsplanningen-Proferus-1-2.pdf” text=”View presentation” size=”small” type=”primary” icon=”” external=”1″]

treasuryXL & Proferus BV

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