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An Introduction to Forwards, Futures and Options | Part 2
17-06-2020 | by Aastha Tomar
In her previous post, our Expert Aastha Tomar explained how the forwards work. Lets see the second type of hedge. The second type of hedge contract is futures. Like forwards they also fix the currency rate for a future date. The major difference between a future and a forward is that futures are exchange traded and therefore they are standardized.
Features of Futures
-> Now why do I say that credit risk is reduced ? As mentioned earlier, all settlement takes place through the exchange clearing house and the two parties buyer and seller are not in direct contact with each other. Therefore since it is the responsibility of exchange clearing house to settle the trade, the counter-parties run the credit risk of the exchange clearing house instead on each other.
Difference between future and forwards
Lets understand futures with an example :
Lets take EUR/USD as an example,
One contract size for EURUSD future is $125,000 worth of Euros and one tick size for EURUSD future is .00005. Therefore the price movement will be ($125,000*.00005) =$6.25 per EUR
Now if we purchase one futures contract of the EUR/USD, which is trading $1.0901 . We are hoping that EUR will appreciate , relative to the Dollar. Suppose we are lucky and things go as expected, and the exchange rate rises to $1.09015, We will make $6.25 in profit (per contract). Cool !!! Suppose we are luckier and FED makes some negative announcement on top of that ECB does some tremendous positive changes in their policy due to which EUR shoots up becomes much more stronger and exchange rate rises to $1.09110 (a whooping increase of 20 ticks), then we would make $125.00 in profit per contract ($6.25 x 20 ticks = $125.00).
lets see it more clearly in the following table :
Now why do corporates stay away from Futures ?
Whether its a forward or future contract, nothing is difficult if you have the intent to learn the product . Once you start understanding how hedge market works and start realizing the benefit of it then it will eventually be beneficial for you as a Treasurer and for your corporate which will be saved from unwanted currency fluctuations. In our third and last post in this series we will talk about Options ..keep learning, be safe.. to be continued ….
FX & Derivatives | Debt Capital Markets | MBA Finance
Electrical Engineer | Sustainability
Virtual Coffee Sessions for NL and BE: Managing Payments in a Remote Reality
| 16-06-2020 | TIS |
Are you tired of talking about “remote working” and the “new normal”? Everyone is keen and ready to get back into the office. But it will never be the same than before. Due to the current situation, special prerequisites need to be taken in order to make sure to meet the health standards but on the other hand creating a situation where people can work together onsite to contribute to business success.
Virtual event
TIS organizes a special virtual event, one that is dedicated to treasurers and financial professionals and moderated by TIS experts. Alongside TIS they will also have two of their customers with them who will also be open to questions and discussion. With the virtual coffee session they connect people in order to find out what the best way of going back to normal can be. They will also talk about a very important topic: Cash Visibility. TIS will highlight how important visibility is to manage payments in these days.
Receive a present
In order to give you a great start into the day and a great virtual experience we will deliver you a little TIS coffee present. Just insert your full delivery address in the registration form and something good will be delivered right in time for the virtual session.
Date, time and registration
Virtual Coffee Session for the Netherlands
Date: Tue, Jun 23, 2020
Timing: 09:00 AM – 10:00 AM CEST
Register here
Virtual Coffee Session for Belgium
Date: Wed, Jun 24, 2020
Timing: 09:00 AM – 10:00 AM CEST
Register here
Please note, the use of the webcam is mandatory.
Meet our Experts – Interview Michael Ringeling
16-06-2020 | Michael Ringeling | treasuryXL
Meet our Expert Micheal Ringeling, an experienced Treasurer with a unique combination of corporate treasury, corporate control and banking expertise. A solid base in finance (Stork, TenneT) and banking (ABN AMRO Bank) contributed to his specialisation in treasury. Being hands on, trustworthy and creative with a can-do mentality, Michael worked as independent interim treasurer in the past nine years for various companies like TNT, Vion, TomTom and Unit4.
Knowing all the ins and outs in the world of treasury, he will hit the ground running and provide efficient and effective solutions on every operational and strategic level in the following areas:
Treasury and Cash Management
Treasury Control
We asked him 11 questions, let’s go!
1. How did your treasury journey start?
I started my career in controlling and worked as a corporate controller for the national high voltage grid operator in the Netherlands (TenneT) when the finance director asked me if I would be interested in arranging a bridge loan facility for the acquisition of a company. The answer was obviously yes and that is how my treasury journey started.
2. What do you like about working in Treasury?
The interaction with various people in the business, managing liquidity and funding, finding smart solutions to optimise payment processes, deal with foreign exchange risks. In short, all different aspects of treasury that contribute to the company’s success.
3. What is your Treasury Expertise?
I am an experienced treasurer with a unique combination of corporate treasury, corporate control and banking expertise.
Finance agreements, Liquidity management, Cash pooling, Efficient banking infrastructure, Intercompany loans, In house bank and intercompany netting, Interest rate and FX risk management, Deal execution, Treasury policies, Cash flow forecasting, IFRS, Financial instruments and disclosures in the annual report and establishing an optimal relationship between organisation and financial institutions are the core of my expertise.
4. Do you have examples of risk mitigation, creation of opportunities and/or cost savings?
For multiple companies, I have advised and executed numerous FX, interest rate and commodity hedges, mitigating the underlying business risks. I have arranged finance agreements enabling companies to pursue new business growth opportunities and implemented cash pools, optimising the cash positions and reducing finance costs.
5. What has been your best experience in your treasury career until today?
I would say the entire journey is one big experience.
6. What has been your biggest challenge in treasury?
Being an interim treasurer, every assignment has its challenges that need 100% attention. The biggest one was a time critical refinance to safeguard business continuity.
7. What’s the most important lesson that you’ve learned as a treasurer?
As a treasurer you are responsible for safeguarding one of the most valuable assets: cash. So be trustworthy at all times, communicate and make sure to always have access to sufficient liquidity.
8. How have you seen the role of Corporate Treasury evolve over the years?
Yes and no. The most important role of a treasurer is safeguarding liquidity. That has not changed much since the concept of money was invented in ancient history. What did change is that we no longer need well armored knights to physically protect the cash. Today’s defense mechanisms are more and more about automation, digital security and regulatory frameworks.
9. The coronavirus is undoubtedly an unprecedented crisis. In general, can you elaborate on the impact this virus has on treasury from your perspective?
Disruptive events like the COViD-19 crisis increase focus on business continuity. Protect your people and your liquidity! Many companies obtained additional (stand-by) credit facilities to make sure sufficient liquidity is available should the business be negatively impacted by the COVID-19 crisis. Cash is king again.
10. What developments do you expect in corporate treasury in the near and further future?
Increasing importance of automation, digitalisation and regulatory frameworks to safely operate corporate treasuries.
11. What is your best advice for businesses without a Treasurer?
Contact treasuryXL and call me.
Most small and mid-size companies will not have a full-time treasurer on board. That does not mean they don’t have treasury risks. Think about finance agreements and their terms and conditions, interest rate risk, foreign exchange risk, payment processes, electronic banking, bank guarantees and bank relationships. Some of these can be efficiently managed by the controller or finance director. However, some treasury topics can be handled better by a specialist. Ad interim, part-time, on a project basis or in an advisory role to support the finance director. Interested in how I can support? Please contact me, I’m just one phone call or email away.
Michael Ringeling
Treasurer
Does your business need support in Treasury or a Treasury QuickScan?