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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.
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.
WEBINAR ALERT | How to achieve cash forecasting excellence – challenges and strategies
treasuryXL | Nomentia |
Date & time: October 20, 2021 at 3.00 pm CET | Duration 45 minutes
Cash forecasting remains one of the most challenging topics in treasury management. With the knowledge and years of experience of our experts within TreasuryXL and Nomentia, we will discuss cash forecasting in more depth. We’ll tackle the challenges that are paired with cash forecasting, and strategies to overcome challenges to achieve cash forecasting excellence.
Join the webinar to learn more about:
Click on the banner for registration.
Meet the speakers
François de Witte
Seasoned Treasury Expert
TreasuryXL
Huub Wevers
Senior Sales Manager
Nomentia
Jouni Kirjola
Head of Solutions and Presales
Nomentia
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:
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.