IGTA Journal - Winter 2020/2021
systematically applied. The machines for example guarantee application of strategies 24/7. By saving time required by too manual processes, a treasurer will be enabled to work on analytical and strategic tasks. Producing figures and hedging efficiently are great but require analysis of data produced. That is what I call the “virtuous FX circle”. Unfortunately, too often FX strategies are determined by Treasurers (i.e., bottom-up approach, instead of top- down above described), as if FX were a matter left to specialists of treasury, despite its huge potential impact on the whole business of the group. FX strategy has significant impacts on operations and need to be properly framed by the C-level. Why does FX risk management remain a major issue? First, FX management, as already said, remains too manual (in general). The problem is that it cannot be fully covered with even the best-of-breed TMS’s of the market. These TMS tools are generic and formatted to fit to many types of businesses and do not cover all needs of a treasurer in terms of FX management. It requires different (other) IT tools, including the inevitable EXCEL spread-sheets, pre-trade, from risk identification, to underlying risk reporting and storage to pricing of the hedging instrument and process, through hedge accounting treatment and reporting post-trade until the final settlement and reconciliation. It passes from a risk identification data base to the TMS via usually FX platforms to the ERP, with often retreatment in XL intermediary reports. Typically, FX management is a great example where over- Excellization is noticed, with all the inherent risks linked to spread sheets. Homeworking has pointed out the risks of insufficient coordination and secured tools, like duplication of hedging, absence of hedging by ignorance of the global position, manual errors in typing, delays in hedging exposures, risks of frauds, etc.… I must confess that I do not know why there is internal resistance to changes. The obstacles may be insufficient technology budgets (given economic crisis), natural and human treasury reluctance to changes and lack of skills and knowledge of existing automated solution or even lack of resources. If proactively managed, dynamically monitored (e.g., for swaps points, when against us) and systematically applied (i.e., 24/7), FX hedging programs can deliver their full and maximum power. On a chart where the vertical axis is effectiveness of hedging programs (most effective being UP) and the horizontal axis the automation of FX management (maximum automation being RIGHT), ideally all treasury departments should be positioned or tend to the up-right hand corner. FX is the perfect illustration of a part of treasury that can be further digitalized and revisited. The bad news is that volatility of FX markets will remain for a while. The good news there are solutions on the market, like KANTOX, for example, to move towards a fully automated FX management. When daily volumes of FX exposures become huge, the best method remains the systematic hedging of any single risk when it arises. However, no one would claim it present any interest for a treasurer as it is a mechanical repetition of thousands of deals. There is no added value from a human and treasury standpoint in repeating FX dealing? But there is a high value in analyzing results and in controlling performances of FX programs. That is the main stake for corporate treasurers, who always complain about their lack of resources. Here, they have opportunity to sort out two major problems. Why waiting longer? IGTA eJournal | Winter 2020/21 | 29
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