Tag Archive for: FX

No More Excuses! It’s Time to Implement the Right Hedging Program

11-10-2021 | treasuryXL | Kantox

More than half the participants of the Kantox & TMI FX Survey describe their existing currency hedging program as inadequate. And that’s not all: 72% of participants admit the need for updates and changes to their policies and programs going forward.

How do we account for this widespread inadequacy? The answer is simple. Most managers start by assessing the available Treasury resources. Only then do they set up the firm’s hedging programs.

This is the wrong approach.

Instead, managers should start by assessing the FX needs of the business, paying special attention to the firm’s pricing parameters. Only then should they design the hedging program.

Over-hedging —the situation of a firm that has hedged in anticipation of an exposure that has failed to materialise— is a perfect example of the challenges posed by a program designed with the available technology. As the Kantox & TMI Survey shows, it is one of the most pressing concerns for treasurers.

The problem of over-hedging is often associated with a ‘lack of visibility’ in treasurers’ forecasts. The apparent solution then is to ask for more staff to be hired at the Treasury team.

At Kantox we disagree with this diagnosis.

More often than not, over-hedging is the byproduct of a hedging program that was badly designed from the start—and where the wrong tools were applied. Spreadsheets, TMSs or ERPs, were never designed with FX management needs in mind.

That’s why it is becoming more and more important to use technology that is flexible enough to allow managers to deploy FX programs that are tailored to the specific needs of the business.

Starting off on the right foot

Take the case of a company that does not update its prices frequently, yet has an FX-sensitive business model, favourable forward points, and a low degree of forecast accuracy. It would be hazardous for such a firm to rely on a traditional ‘static program’ where the whole budget is hedged at the start of the period.

Instead, the magnitude of an early static hedge should be kept within the bounds of what is nearly 100% certain in terms of accuracy. For the rest of the budget, a more dynamic combined program —based on firm commitments— can be designed.

Such hedging programs and combinations of programs can be tailored to fit any business model and pricing parameters. By applying these programs, companies make sure that situations of under or over-hedging are avoided, and that a hedge rate that is equal or better than their budget/campaign rate is systematically achieved.

But this requires technology.

FX Survey

A game-changer: Streamlining the end-to-end FX processes

There is a way out of the costs created by inadequate hedging programs. As Antonio Rami, Kantox’s co-founder and Chief Growth Officer put it during a recent Kantox webinar: “By using technology to streamline the end-to-end process of FX risk management —from the pre-trade phase down to the accounting tasks— companies can sidestep the pitfalls of softwareless currency management”.

Armed with a thorough understanding of the FX needs and pricing dynamics of their business, companies can deploy the Currency Management Automation solutions needed to create —and to execute— the hedging program that best suits the business.

It’s high time to ditch excuses like the ‘lack of visibility’, ‘high FX volatility’ and ‘insufficient treasury resources’.

Start off on the right foot instead. Look at the needs of the business first, and then go for the hedging program that allows your firm to take advantage of emerging growth opportunities—just about anywhere in the world.

5 Tips for Currency Exchange

07-10-2021| treasuryXL | XE |

If you’ve ever travelled abroad, sent a money transfer to family overseas, or made international business payments, you know it can be a pain to exchange currency. Searching banks, online exchange providers, or the streets of an unknown city for the best rates can be time-consuming and costly. And, if you don’t pay attention, foreign exchange costs can add up.

Here are five tips to help you save on currency exchange.

1. Plan Ahead

Find out what the current mid-market exchange rate is with our XE Currency Converter or XE Currency App. Next, compare the rates and fees offered by banks, exchange cambios, and online providers. Once you find the best deal, exchange your funds.

2. Understand Foreign Exchange Costs

Some foreign exchange costs can be transparent and others can be hidden, so it is important to understand what you are paying for. Just like every other company, foreign exchange providers need to make a profit to stay in business. The following are three ways in which providers make money:

  • Currency providers may charge a commission, flat fee, handling fee, or minimum charge
  • They may include a spread in exchange rates by buying currencies at one rate and selling them at another – with a margin included
  • FX providers may also charge transfer fees for wire transfers and other delivery methods

You can calculate your currency exchange costs with our XE Foreign Exchange Charges Calculator. Or, download the XE Currency app for iPhone and use our Rate Advisor to compare your provider’s price to the mid-market rate.

3. Consolidate your Transactions

Since every currency exchange transaction has associated costs, fewer transactions can sometimes result in lower costs. Depending on the type of transaction, you may save money by consolidating several money transfers into one large transaction. Some foreign exchange providers may even offer better rates, or waive commission fees for currency exchanges over a certain amount.

4. Beware of Counterfeits

Every country has its fair share of counterfeit currency – some more than others. To avoid fakes, try to become familiar with the look and feel of the currency. Take note of watermarks and other security features. This can make spotting a fake easier, although it probably won’t be possible to spot a high-level counterfeit. Try to use trusted foreign exchange providers and established currency exchange companies.

5. Bank Overseas for Extended Stays

If you’re moving abroad, studying internationally, or plan to stay in a foreign country for a long period of time, consider sending money and banking overseas. Opening up a local bank account can minimize fees and help keep your money secure. It also makes consolidating your currency transactions much easier and helps mitigate the risk of currency fluctuations.

 


#8 Working with a Currency Provider that uses Rigid Procedures

30-09-2021| treasuryXL | XE |

A common problem for companies looking to manage Currency Risk effectively and want to carry out transactions as cheaply as possible, is that the terms of their currency provider are not flexible enough. This can especially be a problem for companies for which a hedging strategy is suitable but who are put off by the need to pay upfront or a margin for their forward positions. Some currency providers may in such situations offer more flexible credit terms than others.

Zonder die flexibiliteit is een hedgingstrategie voor sommige bedrijven niet haalbaar, zelfs als het valutarisico van het bedrijf aanzienlijk verminderd zou kunnen worden door de implementatie van zo’n strategie. In andere gevallen kunnen bedrijven wel hedgingposities nemen, maar niet onder de voorwaarden die het best bij hun individuele omstandigheden passen. Denk ook aan andere vormen van flexibiliteit. Biedt uw valutaprovider bijvoorbeeld toegang tot verschillende soorten betaalservices? Dat kan van belang zijn als u snel betalingen wilt doen aan verschillende partijen in verschillende markten en tegelijk zo veel mogelijk tijd wilt hebben om de transactie te voltooien. Zoek een provider die zijn service kan afstemmen op uw specifieke eisen en wensen. Uiteindelijk gaat het erom uw bedrijf zo veel mogelijk speelruimte te geven. Of het nu gaat om de dagelijkse transacties of het beheren van het langetermijnrisico, de manier waarop u vreemde valuta benadert, moet worden bepaald door zakelijke eisen en niet door de beperkingen en rigiditeit van uw valutaprovider. Bespreek met verschillende providers wat zij u kunnen bieden.

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Your guide to UTR codes (with a UTR number example, how to get a UTR, and what to do if you lose it)

23-09-2021| treasuryXL | XE |

Whether you want to find a UTR and use it, or you’re lost in a maze thinking of what you should do if you lose the number, we’ve got your back with a UTR number example and more!

A Unique Taxpayer Reference (UTR) number is a code that identifies you or your business in the United Kingdom for tax purposes. Her Majesty’s Revenue and Customs (HMRC), a UK government department, is responsible for collecting taxes in the country and uses your UTR number whenever it deals with your tax.

You may need a UTR for submitting a tax return to HMRC, depending on whether you meet their eligibility criteria.

Feeling foggy already? Whether you want to find a UTR and use it, or you’re lost in a maze thinking of what to do if you lose the number, we’ve got your back, so take it easy!

We’ve also thrown a UTR number example into the bargain to help you understand all of this better. Let’s get the (UTR) show going, shall we?

What’s a UTR number example?

All UTRs have 10 digits, which sometimes end with the letter ‘K’. A simple UTR number example is 12345 67890, with a gap between 2 pairs of 5 digits each.

Do I need a UTR number?

If you have forms of income or expenses that require you to file a Self Assessment tax return, you’ll need a UTR number. This applies in case you:

  • Are or were self-employed as a sole trader and you earned over £1,000 GBP (without claiming tax relief) in the last tax year (April 6 to April 5), or

  • Are a partner in a business partnership (even a nominated partner will do), or

  • Have untaxed income (like commissions, income from renting out a property, or foreign income), or

  • Want to claim an Income Tax relief, or

  • Are a subcontractor who’s either self-employed, a partner in a trust or partnership, or the owner of a limited company in the UK (in all these cases, you’ll have to register for the Construction Industry Scheme or CIS).

In the case your sole income is from your wages or pension, you won’t need to send a return.

However, keep in mind that if you submit your tax return to HMRC 3 months (or more than 3 months) later than the deadline, you may face a minimum penalty of £100 GBP, along with interest on late payments of your tax bill.

How do I find out my UTR number?

First things first, register for a tax Self Assessment, if you have to send an income tax return. You can either register online, or fill up an application form on the HMRC website, print it out, and post it to HMRC.

Once your registration process is complete, or you’ve formed a private limited company in the UK, HMRC will send you an SA250 “Welcome to self-assessment” letter.

You’ll find your UTR number on the top right of the letter, along with a 12-digit activation code (for non-personal tax accounts). This activation code is necessary for signing in to your online self-assessment account with HMRC for the first time.

In case you don’t receive the activation code, though, or you lose it within 28 days of enrolling for the online service, you can sign in to your online HMRC account and simply ask for a new code.

If you’d already registered for the self-assessment and sent a return online before, your UTR should be on your previous tax returns, payment reminders, return filing notices, and other official documents from HMRC like P45 and P60.

Look out for a 10-digit number under “Tax Reference”, just like the UTR number example we’ve included at the beginning of this article.

How long does it take to get a UTR number? 

HMRC automatically issues a UTR number as soon as you register for Self Assessment or you set up a private limited company.

You’ll get a letter from HMRC with the UTR number within 7-10 working days for UK addresses, but it can take up to 21 working days, too, if you’re based abroad.

How can I get my UTR number online?

After registering for tax self-assessment and creating your online account with HMRC, you can find your UTR number online.

Log in to your HMRC account for viewing your tax returns and UTR. Plus, it has become easier now to check your UTR number online via the official HMRC app.

Is my UTR number on my payslip?

If you’ve got a payslip or PAYE coding notice that HMRC sent you, you should be able to find your UTR number there.

By the way, don’t worry if the payslip is 10 or 20 years old, as the UTR number won’t change, ever.

How much tax do I pay with a UTR number?

Let’s assume that you’re a subcontractor working on a couple of construction projects in the UK. Before your contractor can pay you for the first time, he or she must check whether you’re registered for self-employment as well as for CIS.

If the contractors find your UTR on HMRC’s list of CIS-registered subcontractors, they’ll deduct tax at a flat rate of 20% from your payments and pass it on to HMRC.

But if you haven’t given your UTR yet to your employers, or they can’t find your UTR number on the list of CIS subcontractors, they must deduct 30% tax from your pay instead. So, whether you’re living in the UK or abroad, registering for CIS is a smart idea.

You can even apply for gross payment status at the time of the CIS registration process, if you want contractors to pay you in full, without any tax deductions.

Can I have 2 UTR numbers?

No, you’ll get only 1 UTR number, whether it’s a personal UTR or one for a limited company in the United Kingdom. Even if you own multiple companies, each of those will get 1 company UTR number in the UK.

Is UTR the same as National Insurance (NI) number?

Nope. An NI number is a reference number for the country’s social security system.

You have to apply for an NI number when you’ve just turned 16 and you’re working in the UK, applying for a student loan, or you want to claim tax and other state benefits.

In fact, HMRC asks for your National Insurance number and other personal details when you register for self-assessment to get a UTR.

Can I file a tax return without a UTR number?

Long story short, no. You’re definitely going to need your UTR when you submit a self-assessment tax return for the first time.

What if I’ve lost my UTR number?

If you’ve lost or forgotten your UTR number, you can easily recover it from an HMRC document.

But when you can’t get hold of any such documents either, you can ask for your UTR by calling the Self Assessment helpline on a UTR customer service number given below:

  • 0300 200 3310 (if you’re in the UK)

  • 0300 200 3319 (if you’re in the UK)

  • +44 161 931 9070 (if you’re abroad)

It’s also possible to request Corporation Tax UTR from HMRC, in case you’ve got a private limited company in the UK.

For that, you’ll have to provide HMRC with your registered company name and your company registration number (CRN). HMRC will then send the UTR to the business address you had registered with Companies House.

How to contact HMRC for UTR-related and other queries

Apart from the phone numbers we’ve listed above, you can also get in touch with HMRC via:

  • Online videos and webinars. These are available for queries regarding the self-assessment.

  • Twitter. Start your tweet with the tag @HMRCcustomers for general support (please don’t mention your UTR number or any personal info, as it’s a social platform).

  • Webchat. A “speak to the adviser” link will appear whenever an adviser is available, so click on that link immediately. If you don’t, you’ll have to wait till another adviser gets available.

  • Post. Write to HMRC at this address: Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom. You don’t need to include a city name, PO box, or street name here.

What about Unique Transaction Reference numbers?

Unique Taxpayer Reference numbers aren’t the only UTR numbers out there. You may also see the acronym refer to Unique Transaction Reference numbers. While the two numbers share an abbreviation, they are two very different things with very different uses. Unique Transaction Reference numbers are unique codes meant to help banks identify and recognize financial transactions in India. Keep an eye on this space—we’ll discuss these numbers in greater detail in a future blog post!

If you’re paying UK tax while you’re based overseas, you’ll need to make international payments to HMRC. And when you’ve got the Xe money transfer app and website at your service, you can heave a sigh of relief.

International money transfers with Xe are fast, safe, and as easy as ABC.

 

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multi billion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

#7 Poor internal communication (Dutch Item)

16-09-2021 | treasuryXL| XE

Internal communication problems can be an obstacle to good currency practices and risk management, especially as organizations grow. Business units that working in silos and rarely talking to each other, have little insight into the place their specific currency risk within the company’s overall risk.

In het ergste geval nemen bedrijfsonderdelen zelfs autonome beslissingen over transacties en risicobeheer die niet passen binnen de context van het bedrijf als geheel. Zo kunnen toeleveringsketenmanagers hedging gebruiken om het risico van hogere importprijzen af te dekken zonder te weten welke omzet de verkoopafdeling verwacht te halen uit buitenlandse verkopen.

Zulke storingen in de communicatie maken het erg moeilijk voor uw bedrijf om vreemde valuta holistisch te benaderen om de beste koersen en de beste service te krijgen en de risico’s zo effectief mogelijk te beheren. Als uw bedrijf met dit probleem te maken heeft, is het belangrijk om zo snel mogelijk actie te ondernemen voordat sluimerende risico’s ergens in het bedrijf echt een probleem gaan worden.

“Ken alle aspecten van het valutarisico van uw bedrijf”

De beste manier om dit risico tegen te gaan, is samen met uw valutaprovider een degelijk risicobeheerbeleid te ontwikkelen. Als u eenmaal alle aspecten van het valutarisico van uw bedrijf kent, kunt u de juiste procedures implementeren om het op holistische wijze te benaderen. En door deze procedures in elk onderdeel van uw bedrijf te implementeren, voorkomt u dat een enkel onderdeel van uw bedrijf een probleem kan veroorzaken. Tot slot moet u zich afvragen hoe gemakkelijk of moeilijk het is om voortdurend te communiceren met uw valutaprovider zelf. Online systemen maken de dagelijkse gang van zaken voor veel bedrijven sneller en eenvoudiger, maar er zullen altijd momenten zijn dat u extra hulp nodig hebt. Zoek een provider die telefonische hulp biedt waarmee u problemen zo snel mogelijk kunt oplossen. Weet u persoonlijk met wie u waarschijnlijk te maken krijgt? Is er bijvoorbeeld een enkele persoon of een team verantwoordelijk voor uw account? Krijgt u de informatie over valutamarkten die u nodig hebt om proactief beslissingen te nemen?

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Spreadsheet risk: the silent killer of FX performance

07-09-2021 | treasuryXL | Kantox

Imagine a perfectly designed currency hedging program for a company that seeks to protect its annual budget. Given the specific features of that company —especially its pricing dynamics— such a program would allow the finance team to systematically achieve a hedge rate that would be equal or better than the FX budget rate, avoiding overhedging all the while. The hedging strategy would also consider the firm’s degree of forecast accuracy, as well as the forward discount or premium of the currencies in which it trades.

Now imagine that this optimal FX hedging program was implemented on perfectly designed spreadsheets. Armed with super-efficient spreadsheets, the finance team would project forecasted revenues and expenditures, calculate the firm’s exposure to currency risk and set a time frame for the execution of hedges.

A treasurer’s dream come true? Not so fast.

Any reasonably well-designed currency hedging program goes through a process in three phases: the pre-trade phase, the trade phase and the post-trade phase. Each of these phases, in turn, comprises several intricate steps. And here’s where a wholly unexpected risk would sneak in, with potentially devastating consequences: spreadsheet risk, the silent killer of performance.

Spreadsheet risk is omnipresent 

Spreadsheet risk comprises a series of errors stemming mostly from the requirement of data to be manually inputted into each cell. Manual management not only takes up much of the financial team’s resources and time — it makes human error inevitable. The most commonly observed errors and risks comprise:

  • Data input error, including ‘fat finger mistakes’
  • Copy & paste error
  • Formatting errors
  • Formula errors
  • Multiple versions across the firm
  • Lack of backups
  • Users’ lack of skills
  • Insufficient guidelines

spreadsheet risk in FX hedging

Despite all the efforts in spreadsheet risk management, the problem is not going away. In fact, more risk is being created as economies grow and businesses become more complex. The truth is that spreadsheets were originally designed for small pockets of data. They were never designed to handle large amounts of data in an interconnected environment.

Experts know well that the world’s most famous business spreadsheet saw the light of day before the World Wide Web and the internet browser — that is, before the explosion of interconnectedness. And interconnectedness lies at the heart of modern FX hedging programs.

Spreadsheets traveling back and forth

The most prosaic element of a FX program is the seemingly innocuous process of sourcing currency rates for multi-currency pricing purposes. Quite apart from the fact that many firms undertake it with irrelevant time-based criteria, the reality is that, once currency rates are sourced —for example, from the European Central Bank’s website— the commercial team receives the information on a spreadsheet.

Next, the FX exposure needs to be collected and processed. Budgeting, as we know, is a process that involves commercial and production teams, purchasing managers, economists, human resources departments and treasury teams. In other words: the cornerstone of the hedging program is the result of dozens, or more likely, hundreds of spreadsheets traveling back and forth across the enterprise. At this point, spreadsheets risk is only in its initial stages.

Depending on the forward discount/premium of the currencies involved, conditional FX orders are set. The information must be provided by the relevant commercial teams/purchasing managers — on a spreadsheet. Then the trade phase kicks in. If manually executed, several processes take place: approval request, first review, second review, final approval. Yet more spreadsheets are transferred in the process.

And what about the FX payments and collections process? And the FX accounting and performance analytics stages? You guessed it: critically important information is subject, once more, to data input errors, copy & paste errors, formula errors and formatting errors. These are the ingredients of a potentially nightmarish scenario. Even for the best-designed currency hedging programs. And even for programs implemented on brilliantly designed spreadsheets.

FX Automation: taming spreadsheet risk

In an increasingly interconnected world with more complex business models, spreadsheet risk can be a silent killer of performance. Business managers face enough risks in the day-to-day management of their operations, and treasurers in particular have enough on their plates to worry about the spreadsheet risk in their FX hedging programs.

It’s high time they work to better manage this risk. Here, Currency Management Automation is your company’s best antidote. These software solutions use Application Programming Interfaces to ensure that data can flow seamlessly between different systems (ERP, TMS) and software without any need for spreadsheets.

The time to act is now.

#6 Not having a Grip on Compliance (Dutch Item)

02-09-2021 | XE |

Regulatory compliance must be an absolute priority for all organisations involved in foreign exchange transactions with foreign customers and suppliers. You must implement robust procedures to generate the information that your foreign exchange providers must legally have in order to carry out transactions on your behalf.

Als u dat niet doet, loopt u het risico dat betalingen niet op tijd worden verwerkt, waardoor uw relatie met leveranciers en klanten onder druk komt te staan of zelfs uw toeleveringsketen verstoord wordt. Ook uw cashflow kan in gevaar komen. Ondanks deze noodzaak is vertraging door regelgeving een veelvoorkomend probleem bij vreemde valuta. Financiële instellingen moeten zich aan strikte regels houden wanneer zij valutatransacties uitvoeren namens hun klanten. Volgens wetgeving om witwassen en andere verdachte praktijken tegen te gaan, moeten zij de identiteit controleren van alle partijen waarmee ze zaken doen, waaronder de buitenlandse partijen waarmee uw bedrijf contact heeft. Vertragingen in het verificatieproces kunnen de uitvoering van uw transactie vertragen.

“Bescherm uw cashflow, uw toeleveringsketen en uw relatie met leveranciers en klanten.”

U moet ook oppassen dat u niet verstrikt raakt in onbekende buitenlandse bankgegevens. Bankgegevens in eigen land zijn gestandaardiseerd, maar internationaal kan dat van land tot land
verschillen en kunt u te maken krijgen met internationale rekeningnummers (IBAN), bankidentificatiecodes (BIC) en andere gegevens.

Uw valutaprovider moet u kunnen helpen deze potentieel verwarrende variaties te verwerken en tegelijkertijd de geldende regels na te leven. Worden er bijvoorbeeld online systemen gebruikt om de invoer van gegevens te automatiseren, waardoor fouten of ontbrekende gegevens snel ontdekt kunnen worden die anders uw betaling zouden kunnen vertragen? Geeft uw provider eenvoudig advies zonder gebruik van jargon over de gegevens die u nodig hebt van buitenlandse partijen en waar u die kunt vinden? Kan uw provider betaalgegevens in zijn systemen bewaren zodat u ze niet bij elke volgende transactie opnieuw hoeft in te voeren?

Als u niet precies weet hoe u ervoor zorgt dat u de regelgeving naleeft, bespreek dat dan met een gespecialiseerde valutaprovider.

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#5 Getting Overwhelmed by Complicated Administration (Dutch Item)

19-08-2021 | XE | treasuryXL |

Companies that regularly need Foreign Exchange often fail to see the bigger picture more because of all the details of the daily Payments and other transactions. Perhaps are you so busy processing foreign currency that you don’t get around to a lake strategic view of the total Risk of your company. Or maybe those transactions take time equipment that could be spent more productively on other things. It may even be so
that manual data entry procedures are prone to human error that lead to unnecessary delays.

Dit is vaak een probleem voor groeiende MKB-bedrijven, waarvan de eigenaar of oprichter buitenlandse betalingen zorgvuldig wil blijven volgen, maar geen tijd meer heeft voor de toenemende administratieve last. Zij moeten verantwoordelijk blijven voor het autoriseren van betalingen, vooral van grote bedragen, maar hebben geen tijd voor de verdere verwerking.

Uw huidige valutaprovider zou u moeten kunnen helpen om dat probleem op te lossen. Zo zou uw provider een systeem moeten kunnen
maken dat sommige gebruikers beheerdersrechten geeft voor de verwerking, maar het autoriseren van betalingen voorbehoudt aan specifieke personen. Uw provider zou eenvoudige, veilige en betrouwbare verwerking moeten kunnen bieden. En uw provider zou u moeten kunnen helpen vertraagde betalingen te traceren.

Als u niet de beschikking hebt over dit soort diensten, kan het beheren van vreemde valuta al snel een kostbare, tijdrovende taak voor uw bedrijf worden. Daardoor wordt het nog moeilijker om uw activiteiten strategisch te benaderen om de risico’s te beheren, proactieve besluitvorming mogelijk te maken en vooruit te plannen. Vooral grotere organisaties kunnen kwetsbaar zijn voor deze fout.

Maar bedrijven die voor vreemde valuta nooit verder hebben gekeken dan hun huidige provider en nooit op zoek zijn gegaan naar een alternatieve partner, weten misschien niet eens dat er andere mogelijkheden zijn. Als u verstrikt raakt in de details van valutatransacties, praat dan met alternatieve providers over hoe zij u kunnen helpen effectiever te functioneren.

 

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The real value of Multi-Dealer FX trading platforms

16-08-2021 | treasuryXL | Kantox

(Spoiler: it’s not about trading costs)

A few years ago, PwC consultants proposed a clever analogy to illustrate the difference between single-dealer platforms (SDPs) and Multi-Dealer Platforms (MDPs). For banks looking to provide products and services to corporate clients on a platform, SDPs are like an airline’s website, where high-margin sales occur. Multi-Dealer Platforms, in turn, are the equivalent of online aggregators that let customers compare fares and schedules. While the former emphasizes customer relationship intimacy, the latter work as “transactional supermarkets” with a higher degree of automation.

When it comes to the corporate FX market, where spot and forward transactions take the lion’s share in terms of traded volumes, Multi-Dealer Platforms like 360T and SWAPs have been the venue of choice. The shared technology of Multi-Dealer Platforms has enabled them to better adapt to changing customers’ needs than the proprietary technology of most Single-Dealer Platforms. As a result, corporate treasurers have moved en masse to Multi-Dealer Platforms to improve FX trading processes and reduce spreads. As Kantox’s CEO Philippe Gelis argues, the success of Multi-Dealer Platforms has resulted in a spectacular “compression of FX spreads for vanilla products”.

Beyond trading costs: the value proposition of Multi-Dealer Platforms

Lower FX trading costs, the natural result of the Multi-dealer platform proposition, play an important role by facilitating the participation of firms who see a benefit in ‘embracing currencies’ to access new markets and grow their business. But the fixation with lower spreads is unwarranted. Going forward, treasurers will care less about paying 9 bps instead of 10 bps, if a 2% move in the exchange rate can be easily and efficiently handled by an automated hedging program.

To see where the real value of Multi-Dealer Platforms lies, let us start by briefly looking at the three phases of the FX hedging workflow: pre-trade, trade and post-trade.

The pre-trade phase involves sourcing exchange rates for the purpose of pricing as well as capturing and processing the relevant exposure. Once the FX trade is executed and confirmed, the post-trade phase kicks in with reporting and performance analytics as well as accounting and payments and collections.

In this increasingly automated series of steps, MDPs play a key role. Kantox’ partnership with 360T, for example, provides straight-through processing integration for corporates of all sizes to tailor their Multi-Dealer Platform setup to execution and routing rules of their own making. The range of functionalities includes:

  • Trading in spot, forwards, NDFs and swaps with hundreds of liquidity providers
  • Automated trade and data requests via API
  • Transparent pricing with greater efficiency in sourcing
  • Diversification in order to lower counterparty risk
  • Ability to select preferred liquidity providers
  • Complete trade history and audit trail
  • 24/6 execution capabilities
  • ‘Best price execution’ functionality that puts liquidity providers in competition with one another
  • Conditional orders setup with order management tools
  • Automated trade confirmation by API or email

What emerges from this picture is clear: the ‘trade phase’ of the FX corporate workflow is being automated at lightning speed. The reduction in spreads, while important, only tells part of the story. The real value proposition of a Multi-Dealer Platform lies elsewhere: they are an integral part of the seamless, end-to-end management of corporate currency workflows that Currency Management Automation solutions provide.

This process of automation comes with an added bonus: Application Programming Interfaces (APIs) ensure that data can flow seamlessly between different systems (ERP, TMS) without any need for spreadsheets, reducing spreadsheet risk and freeing up valuable treasury resources.

When viewed in this broader dimension, as part of a larger process that includes all the phases of an automated FX hedging program, Multi-Dealer Platforms are part of an ecosystem that allows companies to benefit not only from automating, one by one, the different phases of a hedging program but to have all these processes integrated with one another, thus creating more value than the sum of the parts.

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#4 Having No Insight into the Variety of Products Available for your Company (Dutch item)

05-08-2021 | XE |

Many companies are not aware of the total range of possibilities for the management of Currency Risks. For example, they only buy the necessary currency at the current rate, spot rate, and think any other strategy currency speculation. Hedging in particular is often misunderstood and therefore rejected. currency hedging is not gambling how the currency markets might behave in the coming days and weeks development, but is intended to insure the company against the possibility of unfavorable developments.

“Valutahedging is niet gokken hoe de valutamarkten zich de komende dagen en weken zouden kunnen ontwikkelen, maar is bedoeld om het bedrijf te verzekeren tegen de mogelijkheid van ongunstige ontwikkelingen.”

Er zijn diverse valutahulpmiddelen die u kunt gebruiken om dat te doen, maar laten we termijncontracten eens als voorbeeld nemen. Met deze transacties spreekt u af om in de toekomst een bepaalde hoeveelheid valuta tegen een vaste prijs te kopen. Neem bijvoorbeeld een supermarktketen die over een maand €10.000 moet betalen aan buitenlandse leveranciers. Een termijncontract dat vandaag specificeert hoeveel pond de keten voor die €10.000 zal betalen, elimineert het risico dat het pond de komende weken in waarde daalt waardoor de supermarktketen meer zou moet betalen dan verwacht. Dat is geen valutaspeculatie of gokken hoe de markten zich gaan ontwikkelen, het is
een verzekeringspolis.

Achteraf kan natuurlijk blijken dat hedging niet nodig was geweest. Als in ons voorbeeld het pond niet daalt ten opzichte van de euro of misschien zelfs stijgt, kan de supermarktketen denken dat het onverstandig was om van tevoren een koers vast te leggen. Maar dan zouden ze hedging beschouwen als speculatie en niet als een verzekeringspolis. Zo heeft u er aan het eind van het jaar ook geen spijt van dat u een opstalverzekering hebt betaald terwijl uw huis niet is afgebrand. Dat wil niet zeggen dat hedging de juiste strategie is voor alle bedrijven. Sommige zullen van mening zijn dat hun valutarisico niet zo groot is dat het dit soort verzekering nodig heeft. Maar dan nog moet u er niet vanuit gaan dat uw valutaprovider niet meer kan doen om uw bedrijf te helpen met uw valutabehoeften.

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