Managing Foreign Currency Risk:
Best Practices from the Treasury Professional and Technology Solutions Provider
February 18, 2014
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Managing FX risk
What are the concerns?
• Increased visibility into cash and exposures
• Accurate and timely forecasts
• Risk management and mitigation
• Optimization of hedging strategies
*Visibility*
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Increased Visibility
*Visibility*
Productivity
Financial controls
Global visibility
Effective financial decisions
Cash • Bank reporting• Cash positioning• Forecasting• Liquidity
Financial positions• Investment• Debt• Intercompany • Foreign exchange
Exposures• Foreign exchange• Interest rate• Counterparty• Supply chain
Treasury as a strategic partner
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Accurate Forecasting
50%+ of financial executives cite visibility into data as the barrier to effectively forecast risk metrics
Source: 2013 AFP Risk Survey
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Source: Aberdeen Group, January 2013
Risk management and mitigation
Barriers to effective Risk Management
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FX risk technology and implementation
What are the concerns?
• Providing controlled transparency into cash and exposures
• Providing functionality for accurate and timely reporting
• Providing useful risk management and mitigation tools
• Providing functionality, tools and utilities for multiple hedging strategies
• Adherence to regulatory and compliance standards and incorporating changes
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Providing visibility
1) Consolidate data in one central repository
2) Refine accuracy to build confidence in the data
3) Leverage and implement technology to maintain consistency via:
• Integrating multiple data sources (ERP)
• Sustaining recurring models
• Supporting remote users
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Assessing the Risks
• Exposures
o Assets vs. Liabilities
• Positions
o Cash vs. Liquidity
• Forecasting
o Actuals vs. Projections
*Visibility*
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Managing the risks
• The known…..
o Payables, receivables
o Cash positions
o Derivative positions
• The unknown…
o Future payables and receivables
o Market impacts on cash and derivative positions
o Regulatory impact on balance sheet and income statements
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Risk technology solutions
• In-house
• Client-server
• SaaS (Software as a Service)
o Accessibility by remote users
o Standardization
o Best practices
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Visibility Objective
Proper implementation can help strengthen:
• Visibility into cash
• Visibility into exposures
• Visibility into market conditions (Rates/Prices)
Quality data + Quality analysis = Better decisions
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Forecasting Objective
Proper implementation can help analyze:
• Impact on cash flow
• Impact on profitability
• Impact of changes in assumptions
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Risk Management Objectives
Proper implementation can help manage:
• Remote users
• Multiple workflows
• Timely reporting
• Consistency and reliability of data
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Hedging Objectives
Proper implementation can help execute:
• Balance sheet and cash flow programs
• Complex hedging strategies
• Hedge effectiveness assessment
• Hedge accounting
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Regulatory Objectives
Proper implementation can help maintain and track:
• Regulatory requirements per global regions
o FASB = United States
o IASB = Europe
o IFRS = “Both”
• Regulated hedging actions / strategies
• Changes in regulations
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Conclusion
Proper implementations will:
• Addresses concerns of treasurer / treasury manager AND technology vendor
o Visibility into cash and exposures
o Accurate and timely forecasts
o Risk management and mitigation
o Optimization of hedging strategies
o Regulatory requirements
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Additional Resources
Kyriba Financial Risk Management Solutionhttp://kyri.ba/1hsj4T3
Aberdeen Group Report: Treasury and Risk Managementhttp://kyri.ba/1hsiXqx
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