kyriba currency risk management webinar slides 3.17.16 ss
TRANSCRIPT
Currency Risk Management
March 17th, 2016
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2
Today’s Presenters
Ian Argue, CFAManaging Partner, Global Treasury [email protected]
Thomas GavaghanTreasury Advisor, [email protected]
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 3
Today’s Factors Impacting Currency Risk
Leveraging Technology for Managing Currency Risk
Best Practices for Managing Currency Risk
Agenda
Today’s Factors Impacting Currency Risk
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 5
Factors Impacting Currency Risk
FX
Economic
Geopolitical Market
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 6
Impact of Currency Risk
1. Pricing / Tender
2. Order
3. Production
4. Shipping
5. Invoice
6. Cash
ForecastExposure
CommittedExposure
Accounting Exposure
Revenue
COGS
Gross Margin
Expenses
Operating Income
Other Income/Expense
Net Income
Balance Sheet
Assets Liabilities
Equity
Exposure TypeBusiness Process Impact
Leveraging Technology for Managing Currency Risk
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 8
TMS Risk Management Benefits
Mitigate Market Risk
• Indentify currency and interest rate exposures
• Manage hedging policies and execute hedging transactions
• Perform periodic mark-to-market valuation and market sensitivity analysis
Ensure Counterparty Compliance
• Comprehensive limit reporting engine to manage specific Board of Director mandated compliance policies
• Mitigate Counterparty, Credit Rating and Sovereign risks
Manage Global Liquidity Risk
• Complete cash visibility
• Reduce local balances via target balancing and intercompany loans / IHB
• Reduce fraud at corporate and regional finance level
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 9
Transaction Processing in TMS
Visibility
Pricing
Trade Capture
MTM
Limits
Market & Credit Risk
Scenario Analysis
Reports & Analytics
Settlements
Confirmations
Processing
Accounting
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 10
Transaction Processing in TMS
Visibility into existing positions and exposures
Ability to calculate expected prices
Manually capture transactions executed in the market
Interface transactions in from banking and trading platforms
Visibility
Pricing
Trade Capture
MTM
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 11
Transaction Processing in TMS
Establish and maintain limits
Track risks
Perform scenario analysis– What if?– Stress testing
Create reports– Internal– Regulatory
Limits
Market & Credit Risk
Scenario Analysis
Reports & Analytics
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 12
Transaction Processing in TMS
Generate settlements
Electronic confirmations
Verification and approval processes
Generate accounting entries
Settlements
Confirmations
Processing
Accounting
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 13
Currency Risk Management in Your Treasury Solution
Analyze global currency positions
Support cash flow and balance sheet hedging programs
Comprehensive exposure management workflow and interactive reporting
Formally designate cash flow hedge relationships
Mark-to-market valuations and
sensitivity analysis
Best Practices for Managing Currency Risk
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 15
Best Practices
Front Office
Middle Office
Back Office
Functions related to identifying, classifying and aggregating exposures.
Exposure Management
Processes related to mitigating risks including strategy determination, position monitoring and hedge execution.
Processes that monitor FX activities for policy compliance (limits, Cparty risk etc.) and hedge program performance.
Processes related to the settlement and accounting of all accounting activities.
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 16
Best Practices
Income Statement
Revenue
COGS
Gross Margin
Expenses
Operating Income
Other Income/Expense
Net Income
Order to Cash (O2C): Forecast items Foreign currency
revenuePurchase to Pay (P2P): Forecast items Foreign currency
expensesBalance Sheet
Assets Liabilities
Equity
Balance Sheet: Remeasurement Translation
Best Practices
Forecast transactions– Required to mitigate
impact on gross margin
Invoice in functional currency (pass risk)
Take advantage of natural hedges/ align currency profile
Centralize exposure collection
Front Office Middle Office Back OfficeExposure
Management
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 17
Best Practices
Front Office Process Policy determination Strategy determination Trade Execution
Best Practices Alignment of economic and
accounting objectives– Hedge accounting
Centralized execution of all FX transactions
Standardized trade execution channels
Banking relationships
Exposure Management
Middle Office Back OfficeFront Office
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 18
Best Practices
Middle Office Process Policy compliance– Counterparty limits and monitoring– Trade execution limits
Performance management
Testing
Best Practices Real time limit monitoring Counterparty credit
monitoring FX program performance
reporting– Gross and net impact of
exposures/hedges– Relate to corporate performance
Exposure Management
Front Office Back OfficeMiddleOffice
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 19
Best Practices Exposure Management
Front Office Middle OfficeBack
Office
Back Office Process Confirmations
Settlement
Accounting
Best Practices STP – Straight Through
Processing Automated confirmation
matching Settlement Netting Automated accounting of
cash and month-end entries
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 20
Additional Resources
Kyriba Financial Risk Management fact sheetGet PDF at: http://kyri.ba/RiskManagementSlipSheet
eBook: The CFO’s Toolkit - Minimize Risk and Ensure ComplianceGet PDF at: http://kyri.ba/minimizeriskebook
© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 21
Thank You For Attending
facebook.com/kyribacorp
twitter.com/kyribacorp
linkedin.com/company/kyriba-corporation
youtube.com/kyribacorp
slideshare.com/kyriba
kyriba.com/blog