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What is Pricing Risk (FX Risk) and how to deal with it?
22-09-2022 | Harry Mills | treasuryXL | LinkedIn
Also known as pre-transaction risk, pricing risk occurs between a transaction being priced and agreed upon. It materialises when exchange rates change after a quote has been delivered, either impacting the sales margin or incurring a re-price. treasuryXL expert Harry Mills, founder & CEO of CEO Oku Markets, will explain to us what Pricing Risk is all about, and how to deal with it.
By Harry Mills
Source
Who experiences pricing risk?
Businesses experience pricing risk to a greater or lesser extent depending on the nature of their business, their marketplace, and their sales and purchasing cycles. We find it helpful to consider the following initial points when assessing pricing risk:
A transaction is “FX-denominated” when it is in a currency other than the firm’s functional currency. An example is a UK business providing a quote to an Irish business for an export sale denominated in euros (instead of GBP).
How much influence? An example…
You’ll likely have an intuitive idea of the level of influence that fluctuations in FX rates have on your transactions, but consider a UK company that designs and builds high-end bespoke summer houses (why not?):
One-Size doesn’t fit all
Getting to grips with pricing risk can be fairly straightforward for FX-denominated transactions with a straight-through and linear FX impact on the price, but most businesses have a more complex setup.
Many businesses are converting from a just-in-time to a just-in-case stock strategy. which can bring complexity and may add to pricing risk. It’s our view, here at Oku Markets, that there is no one-size-fits-all approach for currency management, so here’s a few areas to think about:
Pricing risk can impact procurement and sales, although we mostly think about the pricing that we are delivering. What about the pricing we receive, as customers? It’s not uncommon for Chinese exporters to add a large buffer to their prices to factor in fluctuations and depreciation in the USDCNY exchange rate. Read more about China and the yuan.
So it’s worth considering and asking your suppliers and international partners about how they manage FX – is there an opportunity for increased transparency and better terms by tackling the problem together?
FX Risk Map
It might be helpful to visualise the lifecycle of a transaction to identify when currency risk occurs. Again, there is no one-size template for this – every business’ FX Risk Map will look a little different, but here’s a basic setup to get started with:
Dealing with Pricing Risk
Three ways you can reduce pricing risk and deliver more consistent results are:
The most appropriate route or combination of mitigating actions is unique to each business. An online travel company delivering live holiday prices will require higher frequency updates to FX rates and a tighter quote expiry date and FX buffer when compared to a company providing quotes for custom-designed summer houses.
When it comes to an FX buffer, we suggest considering the volatility of the currency pair and adjusting for the relevant quote period.
Let us help you quantify your FX risk
Quantifying currency exposure requires thought and specialist skills and expertise. Most FX brokers lack the capabilities to do this properly, resorting instead to emotionally-charged deal-making which can result in poor outcomes for clients.
We’re proud to work transparently with our clients, and we work hard to break the asymmetry of knowledge and information in the FX market.
You can contact us for a review of your currency processes and for our guidance and suggestions at [email protected] or 0203 838 0250.
Thanks for reading 👋
Harry Mills, Founder at Oku Markets
Factsheet: The TIS Solution Suite
21-09-2022 | treasuryXL | TIS | LinkedIn |
Introducing CashOptix, PayOptix, and RiskOptix features from TIS (Treasury Intelligence Solutions), which offer enterprises of all sizes and industries improved capability to handle crucial cash management, payments, banking, security, and compliance demands. Find out more about the benefits of each suite right away in this unique factsheet.
Get to Know the TIS Solution Suite
TIS classifies the unique capabilities they offer clients into three distinct categories; CashOptix, PayOptix, and RiskOptix. When combined, this cloud-based suite provides organizations of all industries and sizes with superior functionality to address critical cash management, payments, banking, security, and compliance needs.
You can find the factsheet here
Where did the treasury applicants go? | By Pieter de Kiewit
19-09-2022 treasuryXL | Pieter de Kiewit | Treasurer Search LinkedIn
As treasury recruiters, we should know enough about corporate treasury to do intakes and screen candidates. Also, we should know the latest about what’s happening in the field of recruitment and so we read the publications of Geert-Jan Waasdorp of The Intelligence Group. I would like to share his latest, very interesting article and build the treasury connection.
By Pieter de Kiewit
Labour market pressures are not equally distributed among all employers.
I left a link if you want to read the full article but this is roughly what he says. There is a huge growth in people working since before covid. In parallel, there is a huge decline in active applicants. This pressure in the labour market is not evenly distributed among all employers. The ones that can find new employees can do so because of a strong employer brand and increased investments in own or external recruitment. Also, they are willing to decide quick and offer a better package.
So what does this mean if we project these findings on the corporate treasury labour market? My personal observation is that treasury staff is, on average, less driven by the company brand and more by the job content than candidates from other job types. We learned this working for clients like Tesla and Nike. Employer branding specifically towards treasurers would also be hard, I cannot envision a corporate recruiter promoting his manufacturing company at Eurofinance.
How to adapt?
The obvious low-hanging fruit is that the hiring manager, already at the start of the process, has to organise and choose a mindset in the following: being able to decide quickly, from fewer candidates than before, and offering more than the old standard. Even highly skilled recruiters sometimes underestimate these aspects over time.
The judgement if the internal recruitment team is equipped to tackle the search or whether an external one should do the job – we, Treasurer Search – I will not elaborate on here. What I do want to mention is another obvious source that can be opened. For some of us that are considered a paradigm shift: bringing treasury talent in from abroad, from within the EU or even sponsoring a work permit. I am aware that some of us consider this topic highly political. What I can tell, both from our own organisation, as well as from successful placements with our clients, that this can be a very successful solution. In the Dutch labour market already the majority of candidates placed by us is non-Dutch. This is not a plea to open the borders and not be critical. Regretfully we have examples where this solution did not lead to success as coming to The Netherlands can be hard for the new employee. But also locally found candidates can fail in their new job.
My conclusion is that indeed, the world is different, as is the labour market. And given current demographic developments I do not expect a shift back. Luckily there are solutions but we will have to accept the consequences and cannot lean back. Those that do will shrink and go extinct.
Good luck in your search,
Pieter
Thanks for reading!
Pieter de Kiewit