gtnews a buyers guide to risk management systems 2011

8/6/2019 Gtnews a Buyers Guide to Risk Management Systems 2011

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2011

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a buyers guide to RiSk ManageMent SySteMS

3

contentS

Analysing thePossibility of Loss

4R Rs Vll WrlIn order to reduce their

risk exposure, corporates have to address the volatility in the

marketplace, be it foreign exchange (FX) or commodity price

fluctuations, or political and social turmoil in the Middle East.

9M crpr Lq RsHow can companies assess

their liquidity risk, and what business processes and tools they can

put in place in order to manage it?

12em ur brs FX Rs i FsManaging

foreign exchange (FX) risk is a key responsibility for corporate

treasurers. There are different types of FX risk that require attention,

as well as a variety of regulatory and compliance issues to address.

15Fl h Sqz: Ps-rss crpr Rs

MmIssues such as corporate credit rating strength and

regulatory pressures in the derivatives market mean that treasurers

are finding counterparty risk to be one of the most dominant topics

in their overall risk management strategy.

18drr f Srv Plus a functionality matrix of 13 risk

management systems.

Today whencorporatetreasurers gathertogether atdifferent industryevents, the

question of riskand how to protect ones business fromthe volatile markets quickly becomes ahot topic for discussion. All treasurers,no matter which industry they operatein, have had to cope with the sheerunpredictability of the markets.

Interestingly, even when companiesare not directly impacted bycommodity price volatility or foreign

exchange (FX) uctuations, thetreasurer is worried about the knock-on effects.

In terms of what risk keeps corporatetreasurers awake at night, thosepolled in the gtnews2011 TreasuryRisk Management Survey, identiedliquidity, FX and counterparty risk asthe top three risks they will face over

the coming 12 months. This guidetakes a closer look at each of these,and examines how treasurers can usetechnology and specialist resourcesto measure, manage, and mitigate therisks they face, and add value to thebusiness at the same time.

J Mh

editor, a buyers guide to risk

management systems

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Risk Management Systems

2011

BUYERS GUIDE


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For the second year running, liquidity,foreign exchange (FX) and counterpartyrisk are the top three risks facingcorporate treasurers over the next 12

months, according to the gtnews2011 TreasuryRisk Management Survey. Operational riskmoved up to fourth place this year, and interestrate risk dropped one place to fth position.

The survey found that top risks differ dependingon where an organisation is located. Forcompanies based in the Asia-Pacic, central andeastern Europe (CEE), and North America regions,liquidity poses the most important risk. ForLatin America-based organisations, interest raterisk is paramount. Organisations located in theMiddle East/Africa and western Europe reportedconcerns regarding FX risk above all others.

Risk concerns also vary across company size,as measured by annual revenue. The surveyfound that FX risk appears to be a majorconcern across all revenue classes, althoughits rank varies. It is of greatest concern tothose small companies with revenues of lessthan US$10m. FX and liquidity risk are of

equal importance to those organisations withrevenues of US$1bn or more. For the largestcompanies - with revenues greater thanUS$10bn - counterparty risk is paramount.

Jeffrey Wallace, managing partner, GreenwichTreasury Advisors, highlights the difcultyin ranking top risks because companies

operating in various industry sectors, andeither single or multiple countries, willexperience different pressures.

The risks that a technology company suchas IBM faces are different than those that anoil company such as BP faces. It also dependson the scope of a companys business: autility company in Baltimore, for example, thatoperates domestically will not consider FX riskas an issue, he explains.

But one aspect that all corporate treasurershave had to deal with over the past few yearsis the sheer volatility in world markets, whetherin FX or commodity price uctuations or as aresult of the political and social turmoil thaterupted across the Middle East earlier this year.

Unpredictability: FX, Interest Rates

and Commodities

FX

One issue that cascades across everythingis the volatility seen in the marketplace - andno asset class has been immune to this,says Justin Brimeld, senior vice president(SVP) of corporate development at Reval. The

FX market, for example, has experiencedsignicant uctuations. Treasury groups need tounderstand where their exposures are in orderto hedge effectively.

Paul Bramwell, senior vice president, treasurysolutions, SunGards AvantGard corporationsbusiness, agrees: FX has been an increasingfocus in the past few years, particularly in2010 with the global currency crisis and thepartial meltdown of the euro, with the bailout ofIreland and the PIGS [Portugal, Italy, Greece andSpain] countries. We have not seen that level ofinterest in FX risk since 2000.

In the gtnews2011 Treasury Risk ManagementSurvey, the majority (63%) of respondentsindicated that their primary hedging strategy

Reducing Riskin aVolatile World

In order to reduce their risk exposure, corporates have to address the volatilityin the marketplace, be it foreign exchange (FX) or commodity price uctuations,

or as a result of the political and social turmoil that erupted across the MiddleEast earlier this year, writes Joy Macknight.


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objective in managing FX risk is to protect theorganisation from adverse market conditions.Only 8% of organisations reported that theyhedge at the most favourable levels in orderto gain competitive advantage. One in veorganisations indicated that they do not have

an FX hedging policy.

The sizeable number of organisations withouta hedging strategy reects the fact that,until recently, it seemed to be acceptable forcompanies to report currency uctuationsaffecting their prot and loss (P&L) in theirearnings statements. However, as those swingsgot bigger, there was an increased awarenessthat even if a company had a positive swing,this could be a bad thing.

This highlighted the fact that a companydidnt know what its risks were and hadnt

hedged them, explains Bramwell. Anyuctuation is a bad thing: if it goes in acompanys favour, then it was lucky; but if itgoes against the company, then it can wipeout an entire quarters prot. The underlyingrational for a treasury in terms of FX risk isremoving any uctuations from the business.

When fully hedged, a company doesnt need toworry if cross-currency spreads increase: if itsunderlying business goes down in terms of FXvalue, then the FX hedges will go up in valueand offset the dip in the market. However, many

companies do not have people in the treasurydepartment that understand FX risk, nor do theyhave the tools available to mitigate the risk.Companies need to have people within theorganisation that understand where the risks

lie, plus any natural offsets that it might have,and the instruments available to go out andhedge those risks, explains Bramwell. Thesituation is then compounded by the fact thatthese instruments are incredibly complex.

Interest ratesA market risk that is coming to the fore is thelooming interest rate changes. Despite beingheld at historically low levels since the onsetof the nancial crisis, most countries are nowlooking to raise interest rates, which will haveimplications with regard to borrowing rates andassociated hedging exposures.

According to the gtnewssurvey, organisationsare using different hedging tools to manageinterest rate risk in 2011 than they did in 2010.The share of organisations that used swapsincreased from 52% in 2010 to 74% in 2011.

Further, a greater number of organisationsused forward rate agreements (FRAs) in 2011(42%) than in 2010 (27%). A modest share oforganisations used bond futures and/or options(16%); swaptions (10%) and bank-accepted billfutures (6%).

Companies have historically wanted interestrates to be xed so that they could managethe risk associated with rate changes, saysBramwell. Although this risk has subsided overthe past few years, it is now critical to plan outwhat the cost of cash is going to be in the next

several years.

Revals Brimeld argues that companies need touse technology in order to fully understand howthe interest rate increase will impact them. They

need to stress-test their portfolios to understandwhat it means if rates go up by 25 basis points[bps] or 50 bps. Treasurers need tools andprocesses that allow them to understand their riskand exposure, and ensure that they are makingeffective transactions that will allow them to

hedge and then report on that over time, he says.

Commodity prices

Since mid-2010, commodities - such as wheat,steel, cotton, electricity, or crude oil - have beenexperiencing extremely high price volatility.These large uctuations are causing headachesfor many treasurers. Brimeld uses the exampleof the airline sector. In 2009, crude oil wasabout US$40 and now it is over US$100 perbarrel. This certainly impacts airline companiesand their need to hedge, he says.

At the recent gtnewsEuropean Treasurers

Council meeting, held in London on 7 February,the treasurers in attendance all agreed thatcommodity risk was a serious concern.Interestingly, even corporates that arent buyingraw materials directly, for example those inretail and the travel industry, are also feelingthe impact, as the higher cost is passed on tothem. Those treasurers expressed frustration atthe difculty in hedging against commodities towhich their company is not directly exposed.

Herbert Broens, head of trade nance, atpharmaceutical giant Bayer, outlines a

pragmatic approach to commodity hedging,and also some concerns. Companies need todetermine whether commodity risk will havea big impact on their annual results. If it is notcomparable in annual reports, then companies

One issue that cascades across

everything is the volatility seenin the marketplace


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dont feel any pressure to hedge. It is alsoimportant to understand how your competitorsare behaving. If you hedge your commodity

exposures but your main competitor doesntand gets lucky, then you have incurred an extracost that affects your bottom line.

Country Risk: The Rising Threat of Instability

The world is in a state of ux on many fronts,be it political turmoil, a global economic crisisor natural disasters. The recent upheaval inthe Middle East - particularly in Egypt, a majorregional economy, and Bahrain, a global nancialcentre - has negatively impacted the trade owsto and from the region.

Even though the general scope of a treasurerdoesnt normally extend to being an expert ininvestment management or insurance, theydo need to leverage country risk intelligence.In pensions and related investments, suchas sovereign bonds, it is critical to ascertainwhether those governments are likely to bestable in future.

Kevin Franklin, director at Maplecroft,says: There are many issues that wouldnot be typically covered in a standardrisk assessment, which often focuses oncurrencies/exchange rates as a means ofinforming country risk intelligence when itrelates to pensions or investments. However,our research shows that a company cantsolely look at these lagging indicators, butneeds to be proactive and look at the leadingindicators of potential risk in a country.Leading indicators are things such as civilliberties and freedom - the underlying issuesthat inuence political stability in a country.

Maplecroft analyses political risk in two ways:dynamic political risk issues such as terrorism,which would be on the forefront of most

companies risk log; and underlying issues, suchas those relating to more fundamental humanrights, which are issues surfacing in the MiddleEast and other regions.

Environment, social and corporate governance[ESG] issues are becoming a more relevantissue for corporate treasurers. In addition, froman insurance point of view, issues such asclimate change are going to be highly relevantfor certain corporates, Franklin explains. Ourclients are approaching this from differentangles: some are looking at country andsovereign bonds, while others are looking atspecic issues such as climate change andits impact on insurance. Many are beginningto look at their suppliers exposure to humanrights issues.

Not all corporate treasurers have an expandedremit at this stage, according to Franklin, butthe more proactive companies are beginning toask for this type of information. For example, alarge multinational oil company that Maplecrofthas worked with over the past ve years is now

systematically using country risk intelligencethroughout the business, including treasury.

A number of companies are now asking forcountry risk intelligence for the Middle East. Mostof them are in the oil and gas sector but manyother industries as well, such as IT and othersthat have suppliers in the region, are seekingregional information. They are not looking somuch at Egypt, mainly because they understandthe impacts there, but at the surroundingcountries such as Saudi Arabia. Some are eventalking about the turmoil cascading through to

China, which would have a huge impact on theglobal economy, oil prices, etc.

To obtain information at country levelis one thing, but it is also vital to look

at the companies within that country toget a balanced view of counterparty riskexposure, according to Antony Beckley, ordermanagement system (OMS) channel leader, Dun& Bradstreet (D&B). He has seen an increasein treasurers interest at both the macro- andmicro-economic levels. There could be a goodcompany in a bad country, or bad company in agood country. These things need to be balancedout when taking a full view of overall riskexposure, he explains.

D&B rates country risk in 132 markets andits global commercial database holds data on188 million businesses around the world. Thecompany uses a dynamic risk assessmentmethodology that drills down into the socio/political, economic and commercial risk ofdealing with specic companies in certaincountries. It looks at company risk and thelikelihood of a company failing, for example dueto bankruptcy, or if a company is going to slowor cease paying its bills.



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Cash inow is a key issue in cashmanagement, says Andy Craven, head ofpayments at D&B. Our mantra is that tobe forewarned is to be forearmed. We canhighlight to a treasurer which companies areless likely to pay on time. D&B provides an

early warning before the event happens, so acompany is prepared in advance, instead ofreacting to a negative event. Many companiesare re-evaluating their business partners andassessing whether they are going to be inbusiness next year, what the potential risks areand what they can do to mitigate those risks.

In addition, Beckley believes that the creditmanagement department and treasury arebecoming increasingly involved in the front endof the business, as opposed to just managingrisk in the existing customer base. The credit

management department/treasury is nowbeing called on to provide insight for sales andmarketing teams for when they are prospectingfor new customers. These teams dont want towaste time on companies that are in nancial

stress, so they use this information to targetnancially sound companies, he says.

Risk: Measure, Manage, Mitigate

The three Ms of risk - measure, manage and

mitigate - are core to a risk strategy, but for mosttreasuries it proves to be difcult to incorporateall three. This is mainly due to the lack ofresources allotted to this area of the company,whether in terms of technology or staff.

Greenwich Treasurys Wallace explains: Thebasic problem is that treasury is not a corefunction for a non-nancial company. As aresult, it is generally starved of resourcesbecause it doesnt appear to be adding value.This means that it hasnt been able to changethat much in response to increased volatility.

And yet treasurers responsibilities and oversighthas increased, effectively compelling them tobecome more strategic. Dan Miner, generalmanager, treasury services at 3DeltaSystems, says:

Treasury departments are much more visible thenever before. Over the past few years, they haveemerged from a back ofce function to one where,

during troubled nancial times, they are having togive frequent updates, not just to the CFO [chiefnancial ofcer] and CEO [chief executive ofcer]but also the board members, on counterparty risk,liquidity, controls, and compliance with regulatoryissues. This area has received much more attentionover past few years and is taking treasurers beyondtheir area of expertise.

In order to be able to quickly respond to thesedemands, a treasurer must have policies, toolsand a good team in place, so that they canmeasure, track and report on their risk strategy.The lack of resources has led to optimisingwhat was already in place, says RevalsBrimeld. But now companies are hiring peopleto help understand risk policy, and then bringingin technology to help report and manage it.

Bramwell agrees: It is a very volatile marketand an area where treasury faces a shortage ofexpertise to manage the risks. We have seen anuptake in corporates hiring staff from bankingbackgrounds and complex nancial engineeringbackgrounds, to map out where the risks lieand put in place hedging strategies.

He is also seeing an increased interest intechnology. Companies are beginning torealise that to go back to basics and identifywhere their cash is to avoid liquidity risk, andto be able to report and adequately manageFX and interest rate risk, they need a solutionrather than spreadsheets.

Bramwell believes that the value lies withsolutions that normalise and aggregate dataacross the multiple platforms housed withinany business. Most corporates have at leastone ERP [enterprise resource planning] system- more likely two or three. But even if they have

one, they probably have several versions ofthe system. Therefore the data is in a differentformat and needs to be normalised, he explains.In a 2010 SunGard study, it was apparent thatcorporations didnt trust the data they weregetting - it wasnt timely and was inherentlyinaccurate. If a treasurer doesnt believe theirinformation ows or where their exposureslie, then what are they going to hedge? Theywill create exposures by hedging somethingthat fundamentally doesnt t. Therefore, it iscritical to identify what they have, and withouta technology solution, it is almost impossible to

do that.

The following features will take a more in-depthlook at the top three risks facing treasurers:liquidity, FX and counterparty risk.


The three Msof risk - measure,manage andmitigate - are coreto a risk strategy


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The increased cost and scarcity ofliquidity in the past few years broughtliquidity risk to the top of the corporateagenda. This was evident in the

gtnewsTreasury Risk Management Survey2011, which found that liquidity risk was thetop risk corporates were focusing on - andthe percentage prioritising liquidity risk hadrisen by three percentage points, to 28% fromthe previous survey in 2010. This reectsthe increased focus on cash. Right now,

companies are hoarding more cash since itreduces their risk signicantly, even if it doeshurt the bottom line a bit. Running lean andmean is not as popular as it used to be, saysAzmi znl, nancial markets tutor at trainingprovider 7City Learning.

Despite this, many corporates have not yet putformal procedures in place to manage liquidityrisk. Banks have changed their approach due tothe liquidity buffers being imposed by regulatorsto ensure they have adequate capital to meettheir obligations. Although not compelled byregulation to address liquidity risk in the same

way that banks are, corporates can still take alead from banks in terms of the methods theyuse, such as stress testing and putting in placethe appropriate buffers to deal with the worst-case scenarios. Banks have typically taken theleading role in managing liquidity risk, becausefor them its much more crucial than for a non-nancial corporate, znl adds.

Jouni Kirjola, liquidity management productmanager at OpusCapita, notes that how muchcompanies consider liquidity risk dependson the geographical areas they operate in. Idoubt many corporates operating solely in an

economically mature area such as Europe do it.If they are working globally, in my experience,they are more likely to have put the processesin place.

Identifying Liquidity Risk Areas

Identifying potential areas of liquidity risk -either internally or with the help of externalconsultants - is the rst step towardsmanaging it. James Phillips, head ofregulatory strategy at compliancesolutions provider Lombard Risk,says that treasurers shouldanalyse both rm- andmarket-specic risks. First,they need to look at the core

market-wide areas that couldintroduce liquidity risk such as thepotential impact on import, export oroil manufacturing, he says. Thesecond test is: will this cause risksthat are specic to the rm?

Sources of liquidity risk can be: Intra-day:International timezone issues could preventa company from callingon funding fromelsewhere in thegroup, or a humanor technical outagecould prevent it frommeeting an intra-daydemand for fundsquickly enough.

Intra-group:Thiswill affect largerrms, which arepotentially going tohave to offer support to, or callon support from, other parts of thegroup.

Cross-currency:Does the rmhave sufcient quantities of requiredcurrencies available? Its all well andgood to have plenty of funds in another

Managing CorporateLiquidity RiskAnne Petrie looks at how companies can assess their liquidity risk and what

business processes and tools they can put in place in order to manage it.

Running lean

and mean is notas popular as itused to be


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currency, but if you cant swap them outbecause of the closure of FX markets, forexample, youre still going to have a signicant

exposure, Phillips notes.

Sales revenues:Companies should considerhow quickly this could dry up. Firms that areheavily reliant on one sales strategy, eitherrepeat business or many one-off clients could beforced to change their business model in a hurry.

These tests highlight certain exposures thatcould affect the companys liquidity. With thisknowledge, a company can adjust its businessmodel, for example to focus on different areas ofbusiness or strengthen banking relationships.

Stress Testing

Historically, cash ow forecasting has beenforward-looking, focused on identifyingprojected cash ows over, for example, one day,10 days and one month, to ensure that wherenet cash outows exceed net inows on a givendays, the company has enough cash on handto cover the shortfall. The treasurer is alwayslooking forward. What happened yesterday isinteresting, but he cant change it. He needs toknow what is going to happen tomorrow, nextweek, next month or next quarter, says ChrisRowlands, consultant at nancial IT servicesrm CSC. However, as delays in payments andthe possibility of a collapse in supply chainshave increased, this is not enough.

Companies are increasingly supplementing thismethod with considering worst-case scenarios.znl explains: It is about nding the survivalperiod: how long they can withstand if all thepayments to them stop. Phillips adds: Firmsneed to look at the tests that are plausible butnot ludicrous. There are plenty of potentialactions and scenarios that could bring downthe rm but you need to look at those just

inside the ludicrous ones.

znl believes that more companies shouldbe focusing on stress testing in greater detail:If anything, we have seen that emergenciesdo arise more frequently than people thought,so it is a good idea for more corporates tosee how long they can withstand one ofthose situations and what they can do aboutit. He adds that although larger FTSE 100companies are already stress testing, amongsmaller and medium-sized enterprises (SMEs)it remains the exception rather than the rule.OpusCapitas Kirjola cautions against usingbackward-looking information in place of stresstesting. Corporates need to consider the worstand best case cash ow scenarios, instead ofrelying solely on the forecast, he says.

Ideal Balance

Another tool borrowed from banks to mitigateliquidity risk is the ideal balance. This dependson the daily volatility of cash inows andoutows. More cash should be placed in thebuffer if the balance falls below the acceptableminimum, and any excess should be invested.

Using the Asset Buffer

Once a rm has identied the level of liquidityrisk it is exposed to, it can determine the sizeof the liquid asset buffer required. The level ofrisk a rm is prepared to accept and the sizeof the necessary liquid asset buffer are directlycorrelated. In fact, making liquidity risk part of

the culture of the rm is key. This need to bedone, not on an annual basis or on the back ofa fag packet, but as part of the discipline of therm. Senior management involvement and anenterprise risk management culture [are key],Phillips says. For example, monthly board packsshould have an entry covering the current liquidityrisk situation as well as short-term forecasts.

Using stress testing tools allows the rms toevaluate changes in its acceptable level of riskand address them accordingly. If risk indicatorschange to red, rms need to consider whetherthis is due, for example, to a change in thebusiness model, or the level of external risks.


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Or its risk tolerance could have changed,requiring an increase in the size of the buffer.

Achieving Cash Flow Visibility

Good cash ow is essential for managing liquidityrisk. As Rowlands points out: If you have agood strong cash ow, you can survive mostdownturns in the economy. Ensuring you haveenough cash to survive and pay creditors andsuppliers and make wage payments is driving alot of treasurers today. Without cash, they cantfunction as a business. But how can cashow visibility be achieved? Having real-time,accurate information about their cash owis a perennial challenge faced by treasurers

and chief nancial ofcers (CFO) of smallcompanies and global treasury functions alike.Treasurers are constantly looking for tools toenable them to get cash ow information morequickly and more accurately. And that enablesthem to handle their liquidity risk - and all theirother nancial risks, says Rowlands.

Technology

So what technical solutions can companies putin place to get the necessary information in atimely way? The way the information can begathered varies, with some treasurers usingtheir enterprise resource planning (ERP) systemto capture the data, while others have a more

ad hoc way of gathering information, gettingdifferent departments in the organisation,for example sales, cash collections, or even

logistics and purchasing, to communicate theircash or liquidity requirements directly to thetreasury function. Although using spreadsheetsto record and analyse cashow forecasts andliquidity planning may seem rudimentary, itis, as Rowlands notes, quite effective in someways. But if youre relying on large ERPsystems, you cant often get that informationin a timely way, he says. The treasurer needsall the information he can get his hands on, asquickly as possible - and at the highest level,not just the operating level, he adds.

Using the Tools

Many treasury systems have asset liabilitymanagement (ALM) tools designed to modelthe overall shape and size of the balance sheet.However, they are not as useful for analysingcash ow over a relatively short period of time.If you are looking at the criticality of survivalperiods for the next weeks and few months, weare really looking at short-term impact toolshere rather than necessarily business modellingtools for the longer term, Phillips says.

Data quality is also key for ensuring an agileresponse to changes in levels of liquidity risk

exposure - its usefulness will be negated ifthe company has to wait a week for someoneto cross-check the data. Ensuring data qualityrequires discipline in the operational end of therm, to capture data in the right way, as well asgood tools to be able to extract and normaliseand transform the data into a standard formatthat can be put into a stress testing engine.

Sourcing the data from different systems withinthe business is also an issue. That is one ofthe big challenges rms will have if they look toput improved automation around liquidity stresstesting - the non-commonality of different

bits of data relating to the same type of cashexposure, Phillips says. There may well bevertical warehouses associated with supplychain, with money ow, funding, supply ofingredients or whatever it may be but is therefundamentally one set of information that cangive a true picture over time?

Conclusion

Liquidity risk has only recently come to thetop of the corporate agenda, with mitigationtechniques still in their infancy. But thecontinued focus on cash ow means that

putting a strategy in place to manage it iscrucial. As Lombard Risks Phillips summarises:The speed with which liquidity impact canoccur is dramatically quick and having fundingavailable in short order is critical.

The treasurer needs all the information

he can get his hands on, as quicklyas possible


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The importance of FX risk management isaccentuated over periods of uncertainty,which is a reason for its rise in prominenceof the past few years. But what constitutes

FX risk? For the purposes of this feature, FX risk ismade up of the following elements:Transaction risk:The risk of value changes when

a transaction executed in foreign currency is

measured in the functional currency.Translation risk:When a company has

subsidiaries with assets or liabilitiesdenominated in a functional currency otherthan the reporting currency of the holdingcompany. Most multinational companies(MNCs) are heavily exposed to translation risk.

Economic risk:The future impact on cashows and earnings of a company as a result oflong-term changes in FX rates.

Typically, the management of transaction riskhas been the main focus of corporate treasurers.Transaction risk tends to be comparatively easyto identify and manage using traditional hedginginstruments, and often generates a high degreeof management focus due to its visibility in termsof creating prot and loss (P&L) volatility.

Translation risk receives less focus, according toKevin Lester, director of risk management andtreasury services at Validus Risk Management,and gtnewscontributing editor: Translationrisk is an area that is often overlooked, at leastin terms of the implementation of FX hedgingstrategies, largely due to the fact that it doesnot directly impact cash ow, and as a result

hedging translation risk can lead to cash owmismatches between hedging instruments andunderlying exposures.

Despite its low prole, translation risk can haveimportant repercussions, particularly in termsof lending covenants, which are measuredusing accounting metrics that are impactedby currency volatility. As such, it is often thecase that the issue of translation risk deservesgreater focus than it currently receives in manycompanies, particularly in situations where ahigh degree of leverage is employed and there issignicant risk of breaching lending covenants.

Vikram Murarka, founder of Kshitij ConsultancyServices, agrees, but sounds a note of caution.Translation risk can be given more attention,

but then it is correspondingly more difcult tohedge balance sheet items in a cost-effectivemanner, Murarka notes.

Economic risk is also an area which deservesmore attention, as it represents the long-term risk that currency volatility poses to thevalue of the company, and is arguably the

most important category of FX risk, saysLester. As the impact of economic risk goesfar beyond the reporting of FX gains andlosses, and can relate to more fundamentalstrategic issues such as competitiveness andgeographic expansion, the more abstract natureof economic risk can pose a challenge forcorporate treasurers. However, the signicanceof economic risk to commercial strategy canalso mean it is an area in which the treasurerscan add considerable value to the business.

Tools for Treasurers

When it comes to the tools available to treasurersto help manage FX risk, these can be divided intotwo main categories:1. Internal risk mitigation tools.2. External hedging tools.

Economic

Uncertainty BringsFX Risk Into FocusManaging foreign exchange (FX) risk is a key responsibility for corporatetreasurers. There are different types of FX risk that require attention, as well asa variety of regulatory and compliance issues to address. Ben Poole examines

these challenges and the variety of tools and techniques available for treasurersto mitigate and manage FX risk.


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>>

Internal risk mitigation tools involve minimisingthe exposure or impact of FX risk on thecompany by adjusting internal businessprocesses. These tools include intercompanynetting programmes, risk-sharing pricing orsupply contracts, and developing natural hedgingopportunities (either through capital structureadjustments or commercial adjustments).According to Lester, companies are becomingmore focused on maximising the use of internalrisk mitigation techniques (and this trend willlikely continue over the next 12 months), as itallows them to: Minimise hedging costs. Maximise credit availability (through a

reduction in FX credit line usage). Reduce the complexity of hedging

implementation (e.g. hedge accountingrequirements).

Eliminate risk substitution (i.e. exchanging FXrisk for counterparty risk or liquidity risk).

External hedging tools (FX forwards, options,structured products, etc) remain essential toolsfor managing residual FX risk (after internal toolshave been fully exploited). The popularity ofstructured products, particularly those involvingcomplex derivatives or leverage, has certainlywaned since the onset of the nancial crisis,explains Lester. A key reason for this is that manyof these structured products contained shortvolatility components, in the sense that theyinvolved writing options to subsidise the cost ofhedging. As such, they were disproportionatelyimpacted when volatility spiked as a result of thenancial crisis, and many hedging programmesdid not perform well as a result.

Such products seem to be slowly re-emergingas FX volatility has begun to decrease, and thistrend will likely continue as long as volatilityremains contained, says Lester. This couldbe a dangerous trend, and treasurers shouldensure that hedging products are robustenough to manage risks effectively in highlyvolatile markets.

Looking at strategies treasurers are currentlyemploying in this area, Andr de Klerk,nancial risk manager at Moneycorp, suggestscorporates are using of a blend of nancialproducts with different weightings overdifferent periods. Most of the companies weadvise use a combination of spot, forwards andFX options to achieve an appropriate result fora particular requirement, says de Klerk. Everycompany has a unique set of circumstances

and different market views - using the rightproducts at the right time is important.

FX Hedging Strategies

With these tools in place, treasurers needto ensure that they have efcient hedgingstrategies in place. The main areas thattreasurers need to pay attention to include: Establishing clear hedging objectives. Establishing quantiable and visible risk key

performance indicators (KPIs). Ensuring hedging performance is regularly

benchmarked against KPIs.

The setting of risk KPIs and hedgingperformance measurement is an area whichcould often be improved, comments Lester. Inthe absence of such benchmarking activities,

hedging programmes will often be judged onthe basis of whether or not the hedge mademoney, thereby ignoring the original hedgingobjectives, as well as the performance ofthe overall portfolio (including the underlyingexposure). Such an approach will often leadto hedging activities that actually increaseFX risk, rather than decrease it, as the focusbecomes the hedging P&L, rather than theachievement of risk management objectiveswhich are aligned with overall corporatestrategy. In this case, it is essential to havequantiable risk KPIs that are regularlymonitored, and used to recalibrate hedgingactivity as necessary to meet the companysrisk management objectives.Kshitijs Murarka adds: We think thattreasurers need to re-look at their preference

for the natural hedge. They can increasethe protability of their companies - withoutchanging the risk prole - by asymmetricallyhedging both payables and receivables.A natural hedge is a lazy hedge, producinglazy results.

Mark Warms, general manager, Europe, MiddleEast and Africa (EMEA) at FXall, suggests thatthe main area for treasurers to pay attentionto in their hedging strategies is assessingwhich trading methods they are using for aspecic situation. Electronic trading providestreasurers with a choice of execution strategiesand it is important that choice is based on athoughtful process that is appropriate for thespecic trading situation, Warms explains.

Every company has a unique set of circumstancesand different market views


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Treasurers have often required complete end-to-end workow solutions that encompass all aspectsof trading and reporting to meet global compliance

standards and thus manage their risks. Executionquality analytics tools are becoming increasinglyimportant for treasurers, providing them witha comprehensive trade performance overview,as well as metrics to measure the effectivenessof their trading strategy, while at the same timeenabling regulatory compliance. End-to-endintegration of treasury management and hedgeaccounting systems with trading and settlementtools is a best practice for both risk managementand operational effectiveness, notes Warms.

The Role of Technology

FX risk management technology can be dividedinto ve main categories:

1. Market data.2. Dealing systems.3. Transaction/position management.4. Risk analytics.5. Risk reporting/accounting technology.

According to Lester, there is signicant overlapamong providers within these categories.Most of the major TMS [treasury managementsystems] vendors do incorporate FX riskmanagement functionality within their core

systems, which facilitates everything fromoperational process management, such asdeal capturing and basic reporting, throughto more analytical functionality, such as riskmeasurement and sensitivity analysis.

There are also specialised technologyproviders who focus on specic aspects ofthe risk management process, such as hedgeaccounting, deal life cycle management,exposure visibility and risk managementdashboard development. The current trend ismoving away from all-in-one providers, wherea single system is used for all aspects of FX risk

management from operational to strategic, andtowards an integrated solution where best-ofbreed providers are selected for their speciccore competencies, suggests Lester.

When it comes to the more analytical or strategicelements of FX risk management, the preferredtool for many corporate treasurers is still thetraditional spreadsheet (ideally populatedwith data extracted directly from their TMSor accounting system to minimise data entryrequirements and errors). Lester suggests thatthis is likely to remain the case, despite theadvancements made by systems providers, due

to the need for exibility when performing FX riskanalysis. Different corporate treasuries havevery different approaches and requirementswhen it comes to risk measurement and

analysis, making it very difcult for a thirdparty system to meet the diverse needs of thecorporate treasury market, he adds.

Murarka agrees that the spreadsheet model is hereto stay, but that technology providers can look atthat as a starting point for the more complicatedsolutions they develop. The most importanttechnology that treasurers need is a software thatcan track and collate all their FX exposures on theone side and all their hedges on the other side.The software should look and feel like Excel, butshould work internally as a supercharged databasemanagement system, he says.

Regulatory Environment

Looking to the future of FX risk management,regulation is a key unknown that corporates willhave to pay particular attention to, according toMoneycorps de Klerk: The greater regulation ofOTC [over-the-counter] derivatives is certainly aconcern for corporate treasurers. The biggest fearis that it will make hedging more expensive.

New rules outlined under the Dodd-Frank Act inthe US and the European Markets InfrastructureLegislation in Europe, are placing newrequirements on OTC derivatives to be securedwith cash collateral. Although corporate usersof hedging instruments thus far secured an

exemption from both regulations, they will still berequired to report their hedging activities, monitorpositions and provide detailed information toprove that their hedges are constructed to covercommercial risk as allowed by the rules.

Over the past few years, the credit crisisillustrated some of the limitations of current hedgeaccounting regulations, and accounting bodies areworking on replacement standards. Unfortunately,accounting rules have been one of the things thatcaused treasurers to avoid hedging. When theseaccounting regulations were rst introduced, theybecame so important that they superseded the

business rationale for hedging. I am glad to see aseismic shift after the nancial crisis and rightlyso, says de Klerk. Economic and nancial driversare now far more important in determining ahedging policy than the accounting implications.

Conclusion

FX presents a highly visible risk that treasurersneed to manage as part of their dailyresponsibilities. These challenges come in avariety of forms, and with the OTC regulationslooming, it is a risk that will remain of criticalimportance in the future. There are tools and

techniques available for treasurers to mitigateand manage FX risk, and it is important forevery treasury department to give a thoroughevaluation of what their needs are in this area,and to select the appropriate tools for the job.


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Feeling the Squeeze:Post-crisis CounterpartyRisk ManagementIssues such as corporate credit rating strength and regulatory pressures in thederivatives market are meaning that treasurers are nding counterparty risk tobe one of the most dominant topics in their overall risk management strategy.Ben Poole examines the current challenges, plus the solutions available to helpcorporates mitigate and manage their counterparty risk.

T

raditionally, treasurers dealt with nancial counterparties and only occasionally managed riskexposures relating to business customers. This is something that has changed since the creditcrisis, according to Frank Wendt, director at KPMG Financial RiskManagement: In the post-crisis reality, companies have learnt

that counterparty risk must be managed in a holistic way. A propercounterparty risk framework identies all material counterpartieswhich, for example, should also include suppliers.

In order for this holistic approach to be successful, Wendt points out, thetreasury department cannot work in isolation. Different functions - such aspurchasing, credit and collection, treasury and risk management - haveto work together to share practices, internal and external data, peoplesexpertise and systems. Additionally, companies need to developand implement policies and procedures around counterparty riskand have adapted them to changing regulatory and marketconditions, notes Wendt.

Supplier risk continues to rank as one of the biggestchallenges that companies face today. Dan Reid,vice president, credit risk division at Triple PointTechnology, says: Suppliers are caught in themiddle between high and volatile commodity pricesand costly, scarce liquidity from banks. Prices andvolatility are in the biggest swing since 2008, andtreasurers need to evaluate the credit worthiness and abilityto deliver of their entire value chain so they can deliver againsttheir own objectives.

Another striking change in counterparty risk management in recent yearsis the fact that corporates now have to conduct serious counterparty riskanalysis on current and potential banking partners, caused by the series of

collapses and massive losses experienced by the banking sector during thecrisis. Christopher Finger, head of research and communications at MSCI,says: What has changed since the nancial crisis is that banks, eventhe large broker-dealers, can present material counterparty risk. Rather


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than focusing mainly on smaller institutions andconsidering bank risks as minimal, it is nownecessary to scrutinise exposures to banks, and tobe proactive in managing those risks.

Counterparty risks on all sides are greater thanthey were ve years ago, meaning that corporatetreasurers need to be not only vigilant, butproactive in managing and mitigating these risksthrough modern solutions.

Using Technology to Gain

Visibility Over Counterparty Risk

Technology can help corporate treasurers gainvisibility over their full exposure to any of thecounterparty risk sources previously mentioned ina number of ways. David Williams, senior director- head of xed income architects at S&P Valuation

and Risk Strategies, outlines some of the waystechnology can assist: First, you need a completedatabase that links individual companies to theirultimate parent obligor. Tying in a security-to-entityview as well is helpful when looking at individualsecurities. Technology can be used to take alist of entities (or securities) to which you haveexposure and build several views on your ultimateexposure, explains Williams. Its interesting todo this analysis and see that your actual exposureto individual entities or sectors is greater thanoriginally thought.

Technology can also allow a treasurer togenerate a view across several credit indicators.You may have several tools or solutions thatyou use to put together your credit managementframework. Its hard to point to a single

indicator that gives you a complete view, soits important to pull information together that,taken collectively, gives you a more completeview, says Williams. This credit spectrum would

include market-driven views of credit risk andmore fundamentally driven indicators of creditworthiness, alongside the traditional creditratings provided by the ratings agencies. Youwill also need this view across unrated entities,so you will need to make sure you includeways to look at the credit worthiness of unratedentities, Williams adds.

Additionally, technology can help treasurerslook at hundreds or thousands of entities. Usetechnology to do all of your legwork, such asmonitoring for early warning signs of trouble andproviding a score across several indicators. Find

the hot spots, and then use your precious humancapital to dig deeper into where you really needto focus, advises Williams.

Taking a critical look at the technology offeringsavailable, KPMGs Wendt cautions: The systemsaround ERP [enterprise resource planning] andnancial supply chain management offer severalsolutions to deal with counterparty risk. However,the degree of integration to provide, for example,one holistic counterparty risk dashboard is notyet fully available.

Currently, corporates have to work through datawarehouse and data mart structures. Onlineanalytical processing (OLAP) reporting softwareis then able to identify the total exposures towardany counterparty. This is an important one-time

effort and investment, as a commercial customercan be a commercial supplier and a nancialcounterparty at the same time, says Wendt.

The Role of Credit Ratingsin Counterparty Risk

Credit ratings are a way to express the underlyingprobability that a counterparty might not performto expectations. According to Chris Dias, partnerat KPMG Financial Risk Management, someratings tend to be reactive and treasurers shouldconsider rating methodologies that are proactive(mostly option and equity-based expected defaultfrequencies). However, the probability is essentiallya given and cannot be inuenced, so a treasurerhas to manage the exposure and severity of a non-performance event. This fact leads the treasurer tomanage the expected and non-expected loss from

counterparty risk, explains Dias.

There are a number of strategies that atreasurer can employ to react to negativecredit rating changes, including: Reduce the exposure by reducing trade limits

or adjust contractual terms and conditions (onsingle obligor level).

Diversify the risk by trading with morecounterparties or distribute trades moreintelligently through assessing credit riskcorrelations (on portfolio level).

Transfer risk by buying risk protection from

an external party (on single obligor and/orportfolio level). Self-insure counterparty risk by anticipating

losses that potentially can be incorporated in therms pricing (risk based pricing approach).


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a buyers guide toRiSk ManageMent SySteMS

17

Using all of the above in combination.

S&Ps Williams agrees, pointing out that as credit

worthiness degrades, credit policies typically callfor increased monitoring, reductions in exposureto the entity, or potentially triggering risk mitigationstrategies such as moving to all cash transactions.

Whats important here is to do your best to catchsigns of trouble early, and have a clear policy onhow to respond to deteriorating credit worthiness.Credit ratings provide one entitys opinionregarding the credit worthiness of a company.For example, long-term issuer credit ratingsare designed to reect a particular credit ratingagencies opinion of credit worthiness over thelong term, says Williams.

But what else can treasurers use? There are otherindicators, such as market-implied ratings basedon either the credit default swap (CDS) marketor equity markets (through equity-driven creditmodels), or fundamental driven models, whichare based on inputs from the company nancialstatements such as revenue, interest coverage,leverage, etc, that will generate probabilities ofdefault or estimates of credit worthiness that aretypically mapped to ratings scales.

Using a holistic view across these indicators, you

can start to formulate a view on where there maybe trouble. For example, is one of the market-implied ratings indicators diverging signicantlyfrom the long-term issuer credit rating? Whathas been the trend in probability of default? Thiscan be examined both by using structural modelsdriven by equity price, as well as those generatedby models that are more fundamentally driven,explains Williams.

Another important point in this regard is to checkthat the correct indicators are in place for unratedor even private companies. The spectrum ofindicators is wide for companies that are public

and rated, but this narrows rapidly as you movefrom public-rated to public-unrated, and onto private companies, cautions Williams. It istherefore important to have an integrated set oftools that degrades nicely as the set of availableinformation is reduced.

Best Practice Counterparty Risk Mitigation

Strategies in the Derivatives Market

The derivatives market is a key area whereregulators are attempting to tackle counterpartyrisk head-on. The Dodd-Frank Act and the EUSeptember 2010 proposal, including Markets in

Financial Instruments Directive (MiFID) and theMarket Abuse Directive (MAD) reviews, aim toincrease transparency and oversight, provide morestringent collateral and capital requirements, andreduce operational and counterparty risk through

clearing and reporting requirements. Surveyingthe landscape, Triple Point Technologys Reidnotes that regulators are attempting to stabiliseand strengthen the markets by legislating lessrisky market rules, while commodity companiesare in a mad scramble to avoid being labelled asa speculative trading company and the attendant

reporting and capital requirements.

Companies need to prepare for this evolving anduid regulatory landscape by consolidating andautomating their data and systems so that theycan avoid onerous reporting/capital requirements,respond quickly to rulings and directives, and takeadvantage of international regulatory arbitrageopportunities as different geographies applyagainst different timetables, advises Reid.

Unfortunately, however, accounting standardssuffer from inconsistencies within the nancialmarkets, particularly in the area of derivatives

valuation and risk exposure methodologies.According to Bipin Patel, principal consultantat Rule Financial: It will take many years foraccounting standards to approach the currentbest practices used in the derivatives marketsto manage counterparty risk. However there area number of accounting standards initiatives -such as FAS 157 and IAS 39 - that do addressderivatives pricing and valuation methods.

A number of the challenges that treasurers arefaced with in the accounting area are due touncertainty over the ultimate outcome of the

Financial Accounting Standards Boards (FASB)and International Accounting Standards Boards(IASB) deliberations over nancial instrumentsand hedge accounting, as well as the degree ofconvergence between the two bodies on these

topics. In our experience, many corporatetreasurers are uncertain about the relevance andimplications of new global accounting standardsto their treasury operations, explains Chris Duffy,director at KPMG Financial Risk Management.

However, in less than two years, treasurers

will have to address the nancial reportingrequirements of IFRS 9 (covering nancialinstruments), the nal IFRS standard on hedgeaccounting, and the new FASB AccountingStandards Updates (ASUs) on the same topics.And theres more: Treasurers will need to respondto the outcome of the SECs determination ofwhether to incorporate IFRS into nancial reportingrequirements for US public companies, and thepotential timetable for IFRS conversion, says Duffy.

While the dust is still to settle on this ratherfragmented regulatory landscape, it is clear that

treasurers need to be paying close attention towhat the future may have in store, and to planaccordingly to ensure that they are prepared forwhatever comes their way.

Conclusion

Counterparty risk is particularly prominent fortreasurers in the post-credit crisis environment.Relationships with banks, suppliers, customersand other business partners all need to beunder scrutiny, and all the while the regulatorymovements pertaining to counterparty riskalso need to be scrutinised. But by showingvigilance and forward planning, corporatetreasurers are capable of mitigating andmanaging these risks, and adding value tothe business while doing this. The key is to beproactive in your strategic planning.

Proactive Steps for Large Corporates to Mitigate Counterparty

Risks in Their Supply Chain

Counterparty risk can be context-sensitive and the risk elements react differently in different

situations. Solutions exist that help large corporates mitigate counterparty risk in the supply chain

by generating real-time alerts in an easy-to-understand graphical representation. Charu Kirti Jain,

senior business consultant at Information Mosaic, outlines some of the considerations such a

solution could include:

Assessing concentration and overall exposure with a specic counterparty in the supply chain. Monitoring rating agencies views of the counterparties and using these in conjunction with

internal intelligence and views to help maintain internal benchmarks and standards. Adequately measuring a variety of factors such as geo-political conditions, exchange rates,

taxes and duties to assess counterparties and associated risks. Checking on counterparty dependencies, links and entity-level relationships, to identify any areas

of vulnerability. Simulating what-if scenarios and gauging the impact on the underlying transactions

and linked products. Simulating strained scenarios for counterparty and identifying alternate routes in the supply chain. Tracking any changes in counterparty attributes outside dened tolerances. Leveraging historical data of past activity, default behavioural patterns, transactions, and

performance to support the decision making process while choosing a counterparty.


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Some of the most prestigious and successful multinational corporations,nancial institutions and accounting rms in the world have chosen Revalto manage and automate the complex business process of mitigating andmanaging nancial risk.

All of them recognise the key strengths that Reval offers - the award-

winning ability to:

Support all areas of nancial risk: market, credit and liquidity.

Provide best practice exposure aggregation, evaluation, and derivativeexecution tools.

Provide independent and accurate valuations of derivatives.

Evaluate and optimise hedging strategies.

In todays nancial climate, managing nancial risk is no longer a concern- it is a strategic focus. This focus requires highly specialised talent, andReval delivers.

Reval is powered by expert nancial and risk professionals and award-

winning software-as-a-service (SaaS)/web-based technology that supportsall stages of nancial risk management associated with the use ofderivatives. Our powerful combination of derivatives expertise, accountinginsight, and technological prowess addresses the need for derivatives tocomply with all global nancial regulations and accounting standards,including ASC 815/FAS 133, ASC 820/FAS 157, IAS 39, IFRS 7 and more.

As a fully scalable solution, Reval is delivered in two ways:

Reval

Revals SaaS/web-based clients deploy our single version of SOX compliant,SAS-70 Type II audited software to gain secure, 24/7 worldwide access toRevals hosted database and application platform. We deliver daily marketdata thats independent, transparent, comprehensive and covers major assetclasses. Our SaaS platform uses a modular structure that allows clients tocongure the application to best suit their unique needs.

Reval Centre: Treasury Outsourcing Services

Reval Centre is an outsourced straight-through processing (STP) provider.Clients retain Reval Centre to perform derivative valuations and hedgeaccounting for their hedging strategies. Reval uses its experts in nancialengineering, derivative valuation, and accounting to provide timely andaccurate mark-to-market and hedge accounting services to clients who arenot able to manage the programmes internally.

Top reasons why companies choose Reval:

Exposure identication and quantication: We help you to capture andanalyse your exposures from a business unit and corporate level so youcan make hedging and risk decisions with the best available information.

Implementation and execution of hedging strategies: We provide acritical array of tools that allow you to execute hedging strategies - fromcapture of derivative transactions through all stages of trade executionand conrmation.

Regulatory compliance: We help you minimise the risk of nancialrestatement resulting from auditors questioning your valuation ofderivatives or hedge accounting and documentation.

Independent market data: We provide market data that enables you touse an independent source to value and account for your derivatives.

Prot and loss (P&L) volatility: We provide nancial risk managementtools that allow you to better manage your hedging programme andminimise its effect on your bottom line.

Strategy evaluation and reporting: We allow you to integrate forecastsand exposures among business units to report on the performance ofyour hedging strategy to the board level.

Cost and productivity: We deliver a proven, cost-effective solution thatreplaces error-prone spreadsheets and integrates with other nancialsystems to automate the handling of your derivative portfolio and givesyou the ability to close your books on the rst day of the month.

Website: www.reval.com

Tel: New York +1 877 993 3330Toronto +1 416 622 2338London +44 (0) 207 469 4282Germany +49 (0) 179 910 1591Sydney +61 (0) 2 9004 7196India +91 124 4168200Hong Kong +852 2273 5528

Email: [email protected]

About RevalReval provides an award-winning web-based platform that automatescorporate nancial risk management for a wide range of interest rate,foreign exchange (FX), commodity and credit derivatives. The worldsleading corporations and nancial institutions use this Sarbanes-Oxley(SOX)-compliant software-as-a-service (SaaS) to support and executehedging strategies from exposure capture through performancemeasurement and to comply with international and domesticaccounting standards, including ASC 815 (FAS 133), ASC 820 (FAS157), IAS 39 and IFRS 7. Reval deploys rapidly and integrates easilywith treasury management and enterprise resource planning (ERP)systems. The companys SaaS platform and team of nancial expertsare also available on an outsourced basis through Reval Centre. Revalwas founded in 1999 and is headquartered in New York, with regionalcenters based in Philadelphia, Chicago, San Francisco, Toronto, London,Frankfurt, Graz, Sydney, Hong Kong, and Gurgaon.

For more information, visit www.reval.com or email [email protected]

Why Choose Reval?


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SunGards AvantGard RiskSunGards AvantGard is a leading liquidity management solution for corporations, insurance companies and the public sector. AvantGard provides chiefnancial ofcers (CFOs) and treasurers with real-time visibility into cash ows and increased operational controls around receivables, treasury and payments.AvantGard helps companies drive free cash ow and reduce inefciencies across the ecosystem of suppliers, buyers, banks and other trading partners.

SunGards AvantGard suite of liquidity management solutions for corporations helps organisations model enterprise risk around foreign exchange (FX),market, interest rate and commodity risk, counterparty risk and corporate trade credit. AvantGard Risk is an integrated treasury management solution thatprovides comprehensive dealer desktop, risk management and performance measurement capabilities across a full range of physical and derivative treasuryinstruments. This comprehensive functionality helps companies to better manage their exposures across the enterprise.

Detailed forecast and hedge analysis, portfolio modeling, real-time compliance reporting with alerts and a dealer desktop, all combine to provide powerfultreasury functionality. Trading credit limits can be monitored and validated prior to deal capture, helping treasurers to better calculate market prices andsensitivities, determine pricing matrices and solve rates and zero-cost option and structures.

For position management and other reporting, the user has full control over the data elements and presentation. The level of detail/aggregation and drill-downcan be customised by the user for individual queries. The solution offers extensive analysis for the management of interest rates, FX rates and volatilities.Furthermore, functionality for what-if scenarios on market rates allows for comparison and prot/loss analysis.

With AvantGard Risk, treasurers are able to maintain individual cash ows for all transactions, which facilitate detailed liquidity analysis. Cash ows can alsobe imported from external sources for consolidation of the liquidity position. Additionally, the solutions seamless integration of bank account balances, alongwith the ability to group cash ows into customised time proles, provides a comprehensive liquidity management framework.

Website: www.SunGard.com/AvantGardTel: +1 800 825 2518Email: [email protected]

bobsguide is the premier online nancial IT solutions network,

connecting nancial IT suppliers with buyers in areas such as corporate

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features the latest nancial technology news, RSS feeds, jobs, event

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Join a global community of

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www.bobsguide.comFor more details on how to become a member contact bobsguide support on +44 (0)20 7462 9018

or email [email protected]


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Moodys AnalyticsMoodys Analytics, a subsidiary of Moodys Corporation, helps treasurers,risk managers and nance professionals worldwide respond to an evolvingmarketplace with condence. Our integrated solutions include leading-edgesoftware, advisory services, data and research to enable corporations toimprove credit risk management decisions.

With Moodys Analytics, you can:

Qualify and monitor customers, partners and vendors using MoodysAnalytics world-renowned probability of default, the Expected DefaultFrequency (EDF) Measures.

Evaluate probability of default for public and private companies and sovereigns. Detect credit deterioration early and focus on your riskiest exposures. Measure repayment risk and loss given default (LGD).

Understand portfolio performance using stress scenarios. Collect and store counterpartys nancial data. Monitor limits by geography and customer. Accurately and consistently price credit risk. Manage and nance receivables risk more effectively. Distil nancial data at scale to improve efciency and consistency. Understand the impact of default and avoid over-concentration.

Contact us to learn how Moodys Analytics can help you establish better riskmanagement practices in your organisation.

Website: www.moodysanalytics.com/gtnewsTel: + 44-20-7772-5454Email: [email protected]

OpenLinks CTSOpenLinks Corporate Treasury Solution (CTS) has been designed and developedto help treasurers maximise efciency, streamline business processes, minimiseoperational risk, and to help to reduce internal and external costs. CTS providesfront-to-back straight-through processing (STP) with easy access to alltransaction lifecycle events and critical decision-making information.

OpenLinks CTS provides clients with a scalable IT infrastructure tohelp support todays challenges, as well as the ability to capitalise ontomorrows opportunities.

Key System Features Fully integrated: Front, middle and back ofce functionality. Visual drag-and-drop business process management (BPM) builder. Accounting and hedge accounting. Cash management. SWIFT alliance. Cash ow forecasting. Foreign exchange (FX). Debt and capital markets. In-house banking and bank. Credit and market risk. Real-time risk positions Workow management. Commodities and emissions.

Website: www.olf.comTel: +44 20 7382 1929Email: [email protected]

Misys SophisMisys Sophis is the most comprehensive cross-asset and front-to-back-ofcecoverage in the market. In capital markets, Misys solutions are used by morethan 500 leading nancial institutions worldwide supported by an unrivalledlevel of expertise with 1800 domain specialists.

Our solutions offer the most comprehensive cross-asset, front-to-backcoverage available in the market including interest rate, credit, equity andforeign exchange (FX) derivatives, FX, futures and options, xed income,commodities, structured products and lending. Our customers include19 of the top 20 capital markets rms and 13 of the top 20 syndicatedloan bookrunners.

Misys Sophis VALUE is our award winning buy-side solution used by 13 of

the top 20 asset managers. Find out why 22 new buy-side customers choseVALUE to support their investment banking operations in 2010.

For further information visit www.misys.com and www.sophis.com.

Website: www.sophis.comTel: +33 1 4455 3773Email: [email protected]

MurexBuilding on over 25 years of successful presence in capital markets, Murexhas developed an unmatched competence in the design and implementationof integrated trading, risk management and processing solutions for topnancial institutions, clearing houses, corporations and utilities located acrossthe globe.

Ranging from leading market makers to large-sized or medium-sized buy-side and sell-side institutions covering all their capital markets activities onMX.3, the latest Murex platform, Murex clients rely on our strong marketknowledge to support their businesses and keep pace with new practicesinduced by market evolution and regulatory changes.

Implementations powered by the MXpress approach leverage the wealth ofbusiness content accumulated by Murex over the two decades through pre-packaged components of the platform while offering an accelerated processof delivery.

Website:www.murex.comTel: +33 14405 3200Email: [email protected]


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SYSTEM NAME ERMAS FindurInsight Risk

Intelligence

KGR (Kondor

Global Risk)Kondor+

COMPANY Prometeia OpenLink TemenosThomson

Reuters

Thomson

Reuters

Market Risk

Foreign exchange

Transaction

Translation

Economic

Interest rate

Commodity priceGeneric

Specic

Equity price

Weather

Ination

Securities

Systematic

Unsystematic

Liquidity Risk

Funding risk

Long-term funding

Short-term funding

Credit lines

Contingent capital

Credit Risk

Counterparty

Commercial

Sovereign

Pre-settlement

Default

Recovery Operational Risk

Systems

Controls

Data quality

Natural disaster

Regulatory

Fraud

Are the risk measures dened? By the user - By the user By the user By the user

What company size is the RMS targeted at?

Small (US$500m and below) -

Medium (between US$500m and US$1bn) -

Large (greater than US$1bn) -

How many companies have deployed your RMS? 200 - 5 210 450

Risk Management Systems Functionality Matrix 2011


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Moodys

Analytics

MX Risk

ManagerReval

RiskVal Fixed

IncomeRiskView

Sophis

VALUE

SunGard

AvantGardTopOfce

Moodys

AnalyticsMurex Reval RiskVal Validus Sophis

SunGard

AvantGard

Thomson

Reuters

By the user By the user Generically By the user By the user By the user By the user By the user

1000+ 100 400+ 30 50 130 1250+ 15

full functionality some functionality no functionality

Only those vendors that filled out the gtnews RMS Functionality Survey between February 2011 - April 2011 are included.


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Essential treasury skills trainingprogramme from gtnewsAs a leading authority in treasury best practice, gtnews extends this knowledge through our trainingcourses to delegates from across the globe. Knowledgeable course tutors deliver lively, interactivetraining programmes, incorporating case studies and real-life examples of best practice. This invaluableinsight from the coal face of corporate treasury ensures that delegates leave better prepared to add

value to their organisations - whether they are corporations, banks or technology vendors.

Training

In-house Traininggtnews will work with our faculty ofexpert tutors to deliver any of thesecourses in-house for you and yourteam. Taking a consultative approach

we will develop a course tailored toyour current training requirements.With more than five delegatesattending this offers a substantialcost saving to your company overour public course fees.

Please contact:Diana Henderson, Director ofTraining, [email protected],+44 (0)20 7079 2808

Courses include:An Introduction to Treasury A Day in the Life of a TreasuryDepartmentThis unique course has been designedspecifically for those who need tounderstand how a treasury teamfunctions but dont want to spend twoor more days out of the office.

Bond Origination & New IssuesThis three-day course takes thedelegate through the complete newissues process: from the pitch for themandate to post-issuance debt andderivatives management.

Corporate Risk ManagementThis two-day training providesparticipants relevant tools for aholistic approach to corporate riskmanagement and the added valueof treasury.

Enhancing Treasury PerformanceThis unique new course has beendesigned to take the pain out ofunderstanding how and, in particular,what technology is available for theTreasury Department.

Trade Finance TrainingThis comprehensive two-day course isdesigned to provide an overview of therisks of doing cross-border business.

Essentials of InternationalCash ManagementNeed to get up to speed quickly, undersevere time pressure? If you can sparethe time for only one in-depth courseon international cash management,this course will bring you a wealth ofinformation and experience in three days.

Strategic Cash and TreasuryManagementA three-day course on strategic cashand treasury management, which willgive corporate treasury professionalsand those with a business interest intreasury the chance to improve theirtreasury skill set.

Supply Chain FinanceThis unique course has been designedspecifically for those who need tounderstand the basics of supply chainmanagement and the impact ofsupply chain operations on corporatefinancial performance.

Treasury and Working CapitalManagementThis one-day course providesparticipants relevant tools for a holisticapproach to enterprise wide workingcapital management and the potentialrole of treasury.

Contact Us

If you would like to attend any of our training courses, or would like to receive more

gtnews a buyers guide to risk management systems 2011

Documents