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What do you want to know about Treasury?
| 30-10-2017 | treasuryXL |
With this in mind, we decided to proactively launch a new initiative – Treasury for non-treasurers. We consider this as our call to action.
Who are these people?
These can be students; career professionals in other disciplines who are curious; people in the finance industry who are considering either a career change or specializing in the field of Treasury; anyone who just wants to understand what a treasurer does on a day-to-day basis.
What is our aim?
Having always written for the professional, we were confronted with the challenge of getting our information across to people who do not have in depth knowledge. After a lot of research and analysis we decided that the best approach would be to attempt to simply explain the workings of Treasury, without going into too many technical details.
What will be in our articles?
With our knowledge, that relies also on the invaluable input of our expert community, we are considering a framework encompassing such topics as:
This is a comprehensive and challenging list – but not impossible – which will, hopefully, increase people’s understanding and perception of the treasury function.
What we need?
Feedback – and plenty of it please.
These articles will not be written chronologically but, if there are certain topics that you wish to have explained then please do not hesitate to contact us. It is only with your input that we can truly create a service to meet your demands. We think we know what you would like to know, but only you can tell us!
What next?
Hopefully, when the series is a success, we can consider publishing e-books. Credit would always be given to those they have taken their time and effort to impart their knowledge and wisdom to others.
Who are you?
Please feel free to contact us and let us know more about you:
So, come back regularly and watch this space!!
Tell me and I’ll forget. Show me, and I may not remember. Involve me, and I’ll understand.
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How to connect to your bank electronically
| 26-10-2017 | François de Witte |
One of the main challenges in treasury is ensuring the connectivity with your banking partners. Currently corporates use the e-banking, or “electronic banking” channels. ‘Electronic banking’ can be defined as the way in which a company can transmit transactions and obtain reporting instructions to a bank remotely and electronically.
In the present article about bank connectivity, we will outline the current types of e-banking channels in the market, their advantages and the attention points.
Interactive banking channels
For interactive e-banking channels, typically the communication is initiated by the corporate client from a PC within the finance department and the instructions are transmitted to the bank through the internet.
Banks are developing their portals more and more: ING Business Payment, Connexis, KBC-Online, IT Line, RABO Corporate Connect, etc. They also provide a full range of services through them.
Illustration of the interactive electronic banking channel:
Currently the interactive- banking channels are widely used by corporates and other organizations, because they are easy to implement, user-friendly, enable to work on a standalone basis and less expensive. However, the drawbacks are that they are not always that suited for mass payments, and that each bank has its own system. Consequently, if you work with different banks, you will have different electronic banking channels for each bank, which adds to the complexity.
In some countries, the banks have put their efforts together to create a multibank interactive electronic banking channels (e.g. Isabel 6 in Belgium and Multiline in Luxembourg).
In my view, the interactive e-banking channel is best suited for corporates having not too high volumes of transactions and working with only few banks, or in countries were multibank electronic banking channels are available.
Host to host electronic banking channels
Some corporates or public institutions have very high volumes to treat, and will need for this a specific direct connection with their bank, a so-called “host to host” (H2H) connection. This is an automated solution for high volume data transfer between banks and their corporate clients.
Sophisticated H2H connectivity solutions give banks the flexibility to exchange information with their corporate clients in preferred file formats, agreeing on network protocols, and security standards.
The following figure illustrates this type of e-channel:
H2H e-banking channels allows for automated payments and collections, attended (where the client needs to take an action) or unattended (directly initiated by the IT system) connection / authorization. They can treat very high volumes, and to integrate the data into ERP systems.
However, they are also more expensive, because they require a specific IT set-up and usually the services of a middleware provider to ensure the connectivity between your ERP or IT system and the bank.
Up to some years ago, corporates had to set up H2H connections with each of their banks, but now several multibank H2H solutions have been developed by the TMS (Treasury Management Systems) providers or by other multibank providers such as TIS, MultiCash and Power2Pay.
In some countries, the banks have set up common interbank protocols enabling an easier and standardized connection. The best know is EBICS, which is currently in use in Germany and France.
In my view, the host to host banking e-channel is best suited for corporates having very large volumes of transactions and requiring a high level of integration with their ERP or IT systems.
SWIFT e-banking
SWIFT has extended from a bank-to-bank platform to a corporate-to-bank platform, and has also launched its own bank connectivity solution, SCORE (Standardized Corporate Environment). SWIFT enables hence to replace the various e-banking systems with a single, bank-neutral multibank e-channel. This means that treasurers and finance managers can connect with their banks worldwide in a consistent way using industry-recognized standards.
Outline of a SWIFTNET Multibank set-up (source SWIFT):
Companies can connect to SWIFT in many ways. One option is to establish a direct connection to SWIFT, but this can be a technically complex exercise. As a result, many of the companies connecting to SWIFT do so via a SWIFT service bureau. In such a set-up, most of the technical challenges are resolved by the service bureau
The third SWIFT connectivity option is Alliance Lite2. This solution enables corporates to connect to SWIFT in a quicker and less expensive way.
The SWIFT channel offers, beside the multibank character, many other advantages, such as the SWIFT standards, services beyond payments, such as FX and deposit confirmation and securities transactions, and an improved security / reliability compared to the classic e-banking systems
However, the Swift e-banking solution is not easy to implement, and can be quite expensive (in particular for the direct connection and the connection through a service bureau. Hence this solution is more suite for very large corporates and institutions, working with many banks.
Conclusion:
When looking at setting up the e-banking connectivity, several factors need to be taken into consideration, such as the number of banks and transactions, the complexity of the organization and the treasury. Smaller organization can perfectly work with the interactive e-banking channels, whilst larger and more complex organizations need to consider the multibank H2H connections or a SWIFT setup.
In the framework of PSD2, with the XS2A (access to accounts), banks in the EU/EEA will have to provide access to authorized third parties. I expect that thanks to PSD2 the cost of multibank e-banking platforms will go down, which is good news for corporates.
François de Witte
Founder & Senior Consultant at FDW Consult
Foreign currency hedging, a protection of cash flow
| 25-10-2017 | Rob Beemster |
A historical overview of the euro versus the us dollar
Looking back over the last 60 years, we can see that from 1958 till early 1970s there was stability due to the Bretton Woods golden standard. At the end of this, the Vietnam War made it impossible to keep the dollar relation to gold. Early 1980s, the Reagan administration introduced a new economic policy; Reaganomics. Lower taxes and high governmental expenditure. This created a huge mess in America’s monetary situation. Interest rates went to enormous heights, the dollar climbed to unknown levels against the yen and European currencies. American exporters could not sell their products due to this high dollar.
Why the attention to Reaganomics? Well, the Trump administration is a vigorous trailer of the Reagan policy. Lower taxes might be introduced soon and Mr Trump also wants to invest heavily in infrastructure. Obvious, some similarities with Reagan. The new helm of the Federal Reserve Board will soon be appointed. When the board will have more hawks than doves, interest rates might raise sooner than expected. This might have consequences for the dollar and we may see here a reflection of the early 1980s.
Trump and the us dollar
It is known that President Trump regularly protests to so-called currency manipulators like China and Germany. Their trade policies are in his view unacceptable. Due to this view of Trump on currencies, it will be questionable whether he would tolerate a higher dollar at all. The highly unpredictable Trump policy makes it impossible to judge in what direction the dollar will manoeuvre.
The highly volatile euro/us dollar
The dollar has fluctuated severely since the euro introduction in 1999. ECB’s first President, Mr Duisenberg was facing tough times as the euro went from its introduction level of 1.17 to the low of 0.8350 a couple of years later. His world trip to recommend the euro as world reserve currency has realized a demand from authorities to stock euro’s in their currency reserve system. The aggressive build-up of FX reserves by Asian monetary authorities has helped to revitalize the euro. Duisenberg made it happen that the currency went up from low 0.80s to almost 1.60 against us dollar in a couple of years. This occurred not so long ago!
Two examples of neglected currency risk
1, many corporations have changed its landscape to the global market. A lot of exporters are billing their products in euros. A currency risk is obvious when these companies focus on one target area. Clients may find the products too expensive when euro is rising. So one runs indirectly a currency risk. Many countries have linked their currency to the dollar, so a change in the euro/us dollar may have consequence on your sales.
2, trading with China and agreeing to do the transfer in dollars, does not really mean that the risk exposure is in dollars. The transfer risk is in dollars, but the real currency risk is in yuan. Say, the European importer buys goods from China and both have agreed to do the payments in dollars. The Chinese counterparty will adjust the price of the goods when yuan moves against the dollar. The European corporation should install an us dollar/yuan currency risk hedging policy.
Don’t underestimate the course of currencies
Being an active international corporation is not easy, many components are changing markets constantly. Internet makes markets more transparent then ever thought, automation changes the landscape, consumer behaviour is sometimes not logical and newcomers/interrupters create new markets. Within this one has to deal with currency volatility. But this is a component one can conduct. Foreign currency strategy is essential for any internationally active corporation. Currency volatility cannot be underestimated and needs control.
Barcelona valuta experts can help you to create a decent foreign currency strategy. Call us on +31.654981315 or mail us via [email protected] for more information.
Rob Beemster
Owner of Barcelona valuta experts BV