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Managing Foreign Currency Risk: Best Practices from the Treasury Professional and Technology Solutions Provider

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Page 1: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

Managing Foreign Currency Risk:

Best Practices from the Treasury Professional and Technology Solutions Provider

Page 2: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

Managing FX risk from the treasurer and treasury manager viewpoint

Page 3: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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*

Page 4: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 5: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 6: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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Risk management and mitigation

Source: Aberdeen Group, January 2013

Barriers to effective Risk Management

Page 7: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 8: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

FX Risk Management Solutions

Page 9: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 10: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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Assessing the Risks

• Exposures

o Assets vs. Liabilities

• Positions

o Cash vs. Liquidity

• Forecasting

o Actuals vs. Projections

*Visibility*

Page 11: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 12: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 13: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

Objectives of Implementing Risk Solutions

Page 14: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 15: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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Forecasting Objective

Proper implementation can help analyze:

• Impact on cash flow

• Impact on profitability

• Impact of changes in assumptions

Page 16: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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Risk Management Objectives

Proper implementation can help manage:

• Remote users

• Multiple workflows

• Timely reporting

• Consistency and reliability of data

Page 17: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 18: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

© 2014 Kyriba Corporation. All rights reserved. PRIVILEGED & CONFIDENTIAL. 18

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

Page 19: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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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

Page 20: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

© 2014 Kyriba Corporation. All rights reserved. PRIVILEGED & CONFIDENTIAL. 20

Additional Resources

Kyriba Financial Risk Management Solutionhttp://kyri.ba/1hsj4T3

Aberdeen Group Report: Treasury and Risk Managementhttp://kyri.ba/1hsiXqx

http://kyri.ba/1hsj4T3
http://kyri.ba/1hsiXqx
Page 21: Managing Foreign Currency Risk Best Practices from the Treasury Professional and Technology Solutions Provider

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Contact Kyriba

facebook.com/kyribacorp

twitter.com/kyribacorp

linkedin.com/company/kyriba-corporation

youtube.com/kyribacorp

slideshare.com/kyriba

kyriba.com/blog


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