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5 Steps to Automate (and Optimize) Your FX Risk Management Program
03-10-2022 | treasuryXL | Kyriba | LinkedIn |
Companies of all sizes and industries with FX exposures are being impacted by global trade complexities. New dynamics are putting CFOs and treasurersโ FX strategies and their ability to explain results to the test. Automating an FX management program provides numerous advantages. Diminishing the need for manual involvement frees corporate risk, treasury, finance, and accounting teams from sourcing information manually from multiple systems, compiling and uploading it into spreadsheets and finally attempting to put all of this into a management report that is timely.
By Brian Blihovde
Senior Director, Product Marketing
Source
Companies of all sizes and industries with foreign currency exposures are being impacted by a number of global trade complexities. For many, supply chain disruptions, interest rate, and price index increases are taking a toll on profitability. For many others, the impact from increased foreign currency headwinds is becoming the glaring reality unveiling weaknesses in FX risk management programs. CFOs are having a more challenging time predicting income statement impacts in both directions: favorable and adverse; neither direction is good, particularly for publicly traded enterprises. New dynamics are putting CFOs and treasurersโ FX strategies and the ability to explain results, to the test. Using leading practices supported by leading solutions helps CFOs and finance leaders overcome these challenges of reliance upon manual, spreadsheet-based workflows.
Whether your organization is starting, advancing, or reassessing your individual FX risk programs, there are levels of benefits, value and success metrics tied to how exposed and how uncertain your levels of fx risk management are. For instance, are you able to identify exposures, aggregate and categorize them? Are those balances generated from automated journal entries or is there a manual component? Across your systems, how well are market exchange rates used and applied across the ERP, GL, procurement, billing, or FP&A modules? How often? Finally, and probably one of the most overlooked attributes, how long does it take and the number of staff who participate in attempting to gain access to even a partial picture of your FX risk? How efficient is the draw of FX data? Ultimately much effort is put into converting that data into information and what do the lags in the timeliness of the information you, as CFO are using to make decisions? The answer lies in a companyโs ability to invest in technology and process transformation that can stem from that investment.
Automating the FX Management Process
Diminishing the need for manual involvement or onerous workarounds, frees corporate risk, treasury, finance and accounting teams from sourcing information manually from multiple systems, compiling and uploading into spreadsheets and finally attempting to put all of this into a management report that is timely. The giving them more time to analyze information, track exposure trends and proactively seek out other opportunities to eliminate risk. Ultimately, automation transforms how treasury professionals are perceived within an organization, allowing them to be seen as a key resource in strategic planning. The implementation of an FX management program provides numerous advantages, but the three high-level areas for the entire finance organization and business divisions exist:
FX Risk Management Automation: Implications for your Organization
The use of technology does not merely indicate that the application of technology will result in system integration and process automation. Yes, this is one of the starting blocks of taking good processes and creating time-saving opportunities to generate better decision-making with cost-savings optimization. One focus of FX Hedge Management optimization will involve operational cost savings, but another focus should be on taking more of a role in assessing overall strategic success of your hedging through currency pair correlated VaR analyses and scenario analyses. Having more analytical power from technology automation can speed access to better information on your overall cost of hedging foreign currency risk.
Evaluating your FX Risk Program Operations
When evaluating your FX management programs, organizations should consider which of the following aspects of their FX workflow requires better efficiency and effectiveness:
Expanding Analytical Capabilities
Technology solutions should undergo assessment for various capabilities that are part of leading analytical aspects of the FX Risk program. For instance, portfolio VaR analyses can help companies create portfolio views or dive into targeted gross/net exposures while considering the cost of a hedge across specific currency pairs, portfolios. Automation for running simulations helps determine top hedging scenarios that your risk managers can analyze to determine what currency pairs to hedge and what the resulting net exposure and portfolio value at risk will be. Access to automated dashboards and FX business intelligence gives your treasury and finance leaders the ability to Identify strategies to reduce costs and improve the efficiency of your exposure management and hedging programs across specific parameters and filters. If you cannot choose various exposures, legal entity slices, or currency selections, you are not optimally running an automated or efficient FX program. Finally, FX trade desk workflow automation and confirmation capabilities for the back-office is often under-estimated as entering and executing FX trades is part of operational or physical workflows attributed to the program. However, the implications to generating entries, integration to trading or confirmation platforms makes this an integral part of FX Risk processes.
5 Steps to Create an FX Automation Roadmap
The goal is the create a plan and roadmap to optimize and transform the way your finance organization collects, analyzes, aggregates, and mitigates risk from foreign currency exposures. One suggested approach is to work withย FX Advisorsย to help you understand where you are and how to get there. As always, having a plan, success measures tied back to value drivers helps programs succeed.
1.
Identify Systems, Sources of Exposures
Often, there are a wide array and extensive network of foreign currency denominated transactions; and extremely unlikely to be creating offsets that could qualify as natural hedges. The inventory of systems in an extensive matrix is a very good starting point.
2.
Assess Integrity of your FX data, GL accounts, & source postings
Once the system landscape is understood, how well are the controls on your ERPs, ancillary systems and manual transactions coming from sub-ledgers? Are your financial statements subject to shifts from erroneous transactional impacts?
3.
Select and deploy technology targeting automation
Consolidating technology platforms into one risk management platform, allows finance organizations to save significant, material cost amounts and increase profitability from merely being accurate in their hedging activities. Fully automating your FX management program with technology, which entails modernizing data collection, exposure consolidation, calculation and analysis, and hedging recommendations, ensures an organization is operating in step with current FX best practices.
4.
Target a full, end to end solution
Your technology solution should provide for:
direct ERP data extraction and aggregation
exposure and risk analysis generation
automated risk transfer
VaR correlation analytics and scenario analyses
trade execution connectivity to banking portals and trading platforms using state-of-the-art, highly secure SaaS solutions
5.
Customizable, Flexible Business Intelligence
Reporting and dashboards create relevant and valued analytics at your fingertips with real-time speed and automation.
Kyribaโs FX Advisory Services professionals give you leading practice advice and guidance in identifying, assessing, measuring, and implementing positive FX Risk Management results across your people, processes and systems. Learn how to improve and transform your FX Risk Management profile into more predictable and effective hedging results
Learn more about Kyribaโs leadingย FX Risk Managementย solution and our FX Advisory Team today. Reach out to our team of FX Risk Management professionals at:ย [email protected]
LIVE SESSION | My Treasury Career Development & How the Register Treasurer education contributed
29-09-2022 ย treasuryXLย | Treasurer Search |ย LinkedIn
Are you thinking about how you can shape your treasury career and in need for inspiration? There are plenty of education opportunities, but in what education will you invest?
You are invited to join our next Live Session. Registration is Now Open for:
๐๐ฒ ๐ญ๐ซ๐๐๐ฌ๐ฎ๐ซ๐ฒ ๐๐๐ซ๐๐๐ซ ๐๐๐ฏ๐๐ฅ๐จ๐ฉ๐ฆ๐๐ง๐ญ & ๐๐จ๐ฐ ๐ญ๐ก๐ ๐๐๐ ๐ข๐ฌ๐ญ๐๐ซ ๐๐ซ๐๐๐ฌ๐ฎ๐ซ๐๐ซ ๐๐๐ฎ๐๐๐ญ๐ข๐จ๐ง ๐๐จ๐ง๐ญ๐ซ๐ข๐๐ฎ๐ญ๐๐
There is no standard career path for treasurers but one can learn from the choices and developments of the successful ones.
In this webinar two graduated Register Treasurers will share their stories:
They will tell you about how they moved between various stations and will pay special attention to the added value of their post academic degree: The Treasury Management and Corporate Finance programme (RT Programme) at the Vrije Universiteit Amsterdam (VU Amsterdam).
Everyone is welcome to this webinar. This webinar is extra relevant for those who consider joining the RT programme.
๐Moderator:ย Pieter de Kiewitย ofย Treasurer Search
๐Duration: 45 minutes
We can’t wait to welcome you next week!
Best regards,
Kendra Keydeniers
Director, Community & Partners
Download Kantox’s Budget Hedging Report
28-09-2022 | treasuryXL | Kantox | LinkedIn |
Are you a CFO or Treasurer drafting your upcoming budget? Find out how to set, defend and outperform your budget rate in Kantox’s exclusive new report.
Based on real industry insights, you can learn:
๐น The best way to set a budget rate
๐น How to delay hedge execution while reducing forecast risk
๐น How to improve your budgeted profit margins
๐น Top solutions to automate time-consuming processes
๐ Get your report here