the maverick treasurer - january 2017 (pdf version)

The Maverick Treasurer – January 2017 Edition

Treasury Consulting LLP 1 | P a g e



Welcome Readers!!

Welcome to the January 2017 edition of “The Maverick Treasurer”. A Magazine which talks about

Treasury & Foreign Exchange Risk Management, Derivatives & Currency Trading, Interest Rates

Derivatives, Fixed Income Markets (Debt Markets, Money Markets, Capital Markets), Valuation of

Derivatives Instruments, Central Bank Policy Actions, Hedge Accounting (US GaaP, IFRS, IAS, Indian

GaaP, IND-AS), Guidance towards International Accounting Standards, Trading tips pertaining to

variety of assets classes covering both Onshore and Offshore Treasury Markets which in turn would

sink with Proprietary Trading Desk of “ Foreign Exchange Maverick Thinkers”

Editorial Desk of “ The Maverick Treasurer “ would always keep looking at issues which are very

sensitive in Foreign Exchange Markets and in turn would be having Financial Impact ( Balance Sheet

, Profit & Loss Account , Cash Flow Statements ) for both Exporters and Importers.

Editorial Desk of the Magazine would always try to present unseen faces of the Foreign Exchange

Markets and update Chief Executive Officers, Chief Financial Officers, Corporate Treasurers, Private

Sector Bankers, Public Sector Bankers, Financial Controllers, Officers of Banks Oversight Functions,

and Foreign Exchange Traders via Global presence of our Brand – “Foreign Exchange Maverick

Thinkers” having presence across the Globe (Covering all Electronic Platforms)

In Jan 2017 edition Editorial Desk would be covering important aspects of 6 International Currencies

like AUD/USD, USD/CNY, GBP/USD, USD/JPY, EUR/USD, and USD/INR. Editorial Desk would be

covering valuation of all 6 Currency Pairs till 1 Years period where by comparing covering Plain

Vanilla Forwards Contracts vs Options Derivatives Contracts for both Exporters and Importers using

Buy Put and Buy Call Contracts respectively.

At the same time “Financial Derivatives & Analytics “section of the Magazine would be covering

valuation of Derivatives Instruments for both Exporters as well as Importers. During Jan 2017

edition “Financial Derivatives & Analytics “would be targeting both Exporters and Importers

covering variety of derivatives which can be a part of their hedging program.

“ The Maverick Treasurer” also having exclusively Treasury Club on Pan India and Asia basis titled

“Mavericks Club” for all Chief Executive Officers, Chief Financial Officers, Corporate Treasurers,

Private Sector Bankers, Public Sector Bankers, Financial Controllers, Officers of Banks Oversight

By: - Rahul Magan

Chief Executive Officer, Treasury Consulting LLP

Country Director, International Institute of Certified Investigation Professionals, Inc. (IICFIP)

Country Director, Association of Certified Forensic Accounting Professionals (ACFAP)

[email protected] , [email protected]

91-9899242978, Skype ~ Rahul5327, Twitter @ Rahulmagan8

www.treasuryconsulting.in

mailto:[email protected]




Circulation of the Magazine

During 2017 Treasury Consulting LLP Publication Desk would launch its flagship magazine

– “ The Maverick Treasurer “ on several prominent platforms like Flipkart, Snap deal ,

Quikr, EBay and many more.

The Maverick Treasurer

Joomag

Magzter

AMAZON

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TCMS

Readwhere

Pocketmags



The Maverick Treasurer (January 2017) – Table of Contents

Particulars Page No

Global Economic Review by Editorial Desk 5

Valuation of Currencies Australian Dollar (AUD) 6 SDR Currency ( Chinese Yuan ) 7 Valuation of Risk Off Currency (EURO) 8 Euro Union Currencies - Great Britain Pound (GBP) 9 Future of Block Chain Technology - Banking 10 Demise of Turkish Lira (TRY) 12 USD – 2017 Bull Year 13 Volkswagen Emission Scandal 14 Commodities Call – Back to Basics 16 Chinese Yuan , Yen , $ 17 Forecast of Currencies ~Year 2017 ( Quarter on Quarter ) 19 Upcoming Trainings Programs of “ Treasury Consulting LLP “ 20 Profile of Rahul Magan 21 Profile of Treasury Consulting LLP 22 Treasury Consulting LLP – You Tube Channel 23



Global Economic Review by Editorial Desk

At Onset Treasury Consulting LLP Publishing Desk wishing you a very great New Year 2017. We

wish you a prosperous New Year. Have a great time.

In our view Year 2017 would turn out to be a volatile year where by USD would rule the show.

Year 2017 would be a USD Bull Year where by all USD directs like USD/INR, USD/PHP , USD/SGD,

USD/RON, USD/CZK and others would move up while all Dollar indirect or Global Directs like

GBP/USD, EUR/USD , AUD/USD, NZD would move down.

Publication Desk would see a huge bull in Dollar Trades where by USDX or Dollar Index might

touch 110 as well. Sitting today USDX is trading at 103 and moving up. The major beneficiary of

rise in USDX would be Japanese Yen whereby we expect would trade at 125 levels. Imagine a

Country who is doing Quantitative Easing since last 20 Years and sitting today both Central

Government as well as Central Bank doing large scale Monetization of National Debt amounting

JPY Trillions. Japanese Yen was all scheduled to trade at 95 levels while post 8th Nov 2016

proximity between Japan and Trump push this to 118 levels and our Publication Desk would see

this at 125 levels.

As regards Indian Rupee (INR) is concerned then we see high depreciating Indian Rupee to say

72 by Mar 2017. Impact of Demonetization, low growth in Global economy would surely shave off

at least 3% of the GDP in near term. Treasury Consulting would advise Exporters to start hedging

their Foreign Currency Receivables using Rolling Hedging Program while also using Options to

hedge their exposures. Importers are advised to cover their exposures at 67.80 levels using

rolling hedging programs. Publication Desk would advise both Exporters as well as Importers to

cover their Foreign Currency Receivables, Foreign Currency Payables using mix of Forwards,

Options, Options Payoffs and Currency Swaps.

Last but not the least we see Euro to touch parity in Feb 2017. As Europe is getting disintegrated

henceforth future is not so good for Euro. If Euro would touch parity which is the scene henceforth

in that sense all Companies having Euro as a Foreign Currency Receivable would surely lose.

Considering Euro outlook Treasury Consulting Publishing Desk would advise Organizations to

cover their exposures using Options, Options Strategies like Range Forwards (Exporters), Range

Forwards (Importers), Seagull (Exporters), Seagull (Importers), Call Spread and Put Spreads.

Advice from Editorial Desk: - Traders are advised to keep an absolute look at the volatility levels

in their Portfolio. Sitting today crosses are turning more volatile than straight Direct and Indirect

Pairs in the Foreign Exchange Markets. Central Banks left with either little or no fire power to

douse the fire of Global Recession which is round the corner so be careful mates!!

All the Best,

Rahul Magan


Founder & Chief Editor, “The Maverick Treasurer”

91-9899242978, Skype ~ Rahul5327, Twitter @Rahulmagan8


http://www.treasuryconsulting.in/



Commodity Currency – Australian Dollar (AUD)

As we understand that Australian Dollar is amongst Group of those Currencies having high

volatility. Commodities Currencies would be facing more volatility in near term as United States

would go with huge amount of Capex which would pump up Commodities. At the same time

Australian Dollar would face the same call which they are facing long time but no concrete reply

– AUD/USD or AUD/CNY or CNY/AUD?? I suggest time has come when Australian Dollar would

go with AUD/CNY as with this they would Reverse Dollarize their Balance Sheet and also would

continue to get the status of Direct Currency Pair.

In the near term Central Bank of Australia would face another call which is Call of Carry. Under

this Central Bank to decide whether to continue with same overnight rate or cut it. Reason is

pretty simple with Trump 10 Year United States Treasuries (UST) is trading at 2.50% which is

expected to touch 3% and then 3.5% which would surely put all Investment Carry Currencies in

dilemma.

Fall in the valuation of Commodities Currencies lead to impairments in the books of major

players. In our view longer tenor Impairment would rise and with the rise in impairment would

further put pressure on the valuation of Commodities Currencies.

Important Points to Ponder about Australian Dollar:-

1. Australian Dollar downward bias aligned with Stronger Dollar.

2. Editorial Desk predicts Australian Dollar trading at .70 levels by Mar 2017 and .68 by June

2017. If Aussie would touch .68 then it would be a blessings for USD exporters in Australia

and doom for USD importers in Australia.

3. We expect Australian GDP to grown by 3% during 2017 as some fuelling would help booming

up Australian Dollar GDP.

4. We all understand that June 2017 Brexit would start and with this all major UK banks would

start moving out of UK and this would surely impact amongst most volatile cross which is

GBP/AUD.

5. Aussie would soon decide whether to follow CNY Status who is now a part of SDR Basket or

continue with USD. Sitting today Australian Central Bank signed a Cross Currency

agreement with Chinese Central Bank PBOC.

6. On the Trade from China Trump relationship would surely impact Australian Dollar. In our

person opinion Australian Dollar would go with USD.

Advice for Exporters and Importers:-

Year 2017 would be very interesting year for Commodities Currencies. Editorial Desk expect a

great movement in both Australian Dollar, Canadian Dollar. We do see OIL trading at 75/Barrel

while Iron Ore would surely move up. Editorial Desk is suggesting to all Australian Exporters

Importers to have Quarterly Rolling Hedge Program in place and also start having Options in their

Portfolio which covers Australian Dollar Forwards, Options like Buy Put, Buy Call, Range

Forwards (Exporters), Range Forwards (Importers), Seagull (Exporters), Seagull (Importers),

Call Spread Bull, Call Spread Bear and Put Spreads.

Editorial Desk agree with the thoughts that best Hedging Composition would decide impact in

your P&L whether Dr or Cr??



SDR Currency – Chinese Yuan (RMB)

As we understand that China now 2nd largest economy of the world with the GDP size of over $ 13

Trillion having FX Reserves of $ 3.5 Trillion which is highest in the Asia Pacific region in fact would

be highest vs Tokyo. The best part of the China is $ 3.5 Trillion of FX Reserves and at the same

time having Positive Net International Investment Position (NIIP) of greater than $ 1 Trillion.

China also boasts of having highest Investments in UST as well which is United States Treasuries.

Important Points to Ponder about Chinese Yuan:-

1. Currently Chinese Yuan is trading at 6.9 vs USD which is very high vs past

2. People Bank of China (PBOC) which is Chinese Central Bank is losing control over the fixings

of Chinese Yuan as now Yuan is a SDR Currency.

3. Throughout 2016 Chinese Yuan depreciated and that too at the faster pace.

4. China is facing Outward Direct Investment (ODI) which effectively means investors are

taking funds out of China however at the same time China still enjoys the status of Global

Manufacturing base.

5. China – Trump relationships would be a great concern to watch and especially when Trump

would like to consider Tokyo as an Investment Partner.

6. Chinese Central Bank PBOC is considering strategic investment via its Sovereign Wealth

Fund (SWF) Chinese Investment Corporation to create Equity Position in best known

Companies across the Globe.


Chinese Yuan is now acting as a SDR Currency of the world and with the same Chinese Central

Bank PBOC would lose all control over fixing of Chinese Yuan. We all understand that Chinese

Yuan is acting as a Non Deliverable Currency Pair where by every day based upon some formula

Chinese Central Bank would fix the Currency Pair. The same fixing would be use to settle all Non-

Deliverable Contracts having CNY as a Currency Pair. Regarding CNY Options we are going to use

Tokyo Cut. Sitting today all Non-Deliverable Currencies across the Globe would get settle using

daily fixing by their Central Banks.

We recommend Traders to hedge Chinese Yuan using Options Contracts and that too using

Options Strategies like Range Forwards, Seagull, Call Spread, Put Spread, and Knock in Knock out

Options (KIKO) though the trend is very clear Chinese Yuan would depreciates during 2017.

The following is the currency forecast of Treasury Consulting LLP for 2017:-

Currency/ Time Period Q1’17 Q2’17 Q3’17 Q4’17

Chinese Yuan Fixing by PBOC 7.10 7.15 7.20 7.40

Taking an Out of the Money Forward (OTMF) would help you having save from the probable FX

losses on Non Deliverable Forwards Contracts having CNY as a Fixing Pair.



Valuation of a Risk off Currency – Euro

Euro is also known as most volatile Currency pair of the Globe especially when it is all scheduled

to trade at parity. Agree or disagree Year 2017 would be Year of USD, Chinese Yuan, Euro and

GBP. Treasury Consulting LLP is having of view that sooner or later Euro would disintegrate

where by all major European powers like Germany France would disintegrate with EU and floats

their own Currency like in the past. We also see that Banks would be facing deep mess in their

Assets Holdings specially PIIGS. As per the reports Italian Banks needs Euro 52 Billion to clean

their Books while sitting today Italian Govt just managed Euro 20 Billion.

Important Points to Ponder about Euro:-

1. Treasury Consulting Publication Desk see Euro trading in the range of 1.05 – 1.08 in next

few months although there is a big probability of reaching to 1.03 as well.

2. On previous occasions Euro was saved by NY Hedge Funds, Institutional Investors as there

was no concern about Brexit but now we doubt NY Hedge Funds, FII would save Euro as

London is slowly losing the status of world financial centre.

3. European Central Bank (ECB) is all set to do Quantitative Easing (QE) of Euro 1.7 Trillion

which would continue in near term. In our personal opinion ECB would continue with QE till

2019.

4. We do see Growth Rate of not more than 1% in the Euro Area and would see UK grow by less

than 1% in upcoming time. Reason is pretty clear which is Brexit.

5. Higher the Quantitative Easing lower would be the rates in Europe. Sitting today Europe is

amongst countries who do have negative interest rates like Japan, Tokyo and Swiss.

6. Treasury Consulting predicts deep negative Interest rates in Europe due to Quantitative

Easing (QE) and Brexit.


As all Traders understand that both Euro and GBP and their respective crosses termed as

Volatility Gauges. At the time of writing Euro was trading at 1.04 against Dollar henceforth we

would continue to hold our opinion of having Euro Parity till Jan 2017 however at the same time

we would like to suggest all Exporters, Importers to have Seagull like Structure in place to hedge

their Foreign Currency Receivables, Payables. We do advice to take Seagull (Exporters), Seagull

(Importers) having Strike Rates at OTMF.

Currency/ Time Period Q1’17 Q2’17 Q3’17 Q4’17

Euro 1 .98 .96 .96

Currencies 1M Implied Vols 3M Implied Vols 9M Implied Vols 1Y Implied Vols EUR/CHF 6.1 % 7.5 % 7.5 % 8.6 % GBP/EUR 13.3 % 12.5 % 14.2 % 13.3 % EUR/USD 11.8 % 11.0 % 11.7 % 11.7 %

Implied Volatility of well-known Euro Crosses.



European Union Currencies – Great Britain Pound (GBP)

As we understand that UK is facing the biggest question which is whether to continue with

European Union or exit?? However at the same time Growth prospects of GBP also not sounding

very good. As a Trader we can certainly see the same on valuation of Currency as well as volatility

levels in our portfolio.

There was the time when GBP was trading over 1.61 levels which effectively means 1 GBP was

equal to 1.61 $ however over the period many issues somewhat relates to Global headwinds till

Brexit took GBP to 1.22 levels or probably lower as the time would come.

Important Points to Ponder about Great Britain Pound:-

1. The near term impact on the Growth elsewhere in the EU seems relatively clear.

Heightened uncertainty after an exit vote would weigh on sentiment and spending in UK,

and add a risk premium to UK assets. As a consequence Sterling would fall which is

happening and may trade at 1.35 levels as well.

2. These developments would have negative impact for EU. As per estimates 10% decline in

Sterling means Euro would appreciated by 1.3% on trade weighted terms.

3. ECB (European Central Bank) first response statement is likely to be a statement that it is

closely monitoring the impact of the vote on financial markets and its implications on

Growth and Inflation.

4. It would not take long for ECB to intervene in stressed assets markets with variety of

liquidity provisions targeting Banks and Assets purchases however at the same time ECB

to look at its balance sheet as well before making any decision.

5. The medium term impact of Brexit is very uncertain. Much will depend on relationship

between UK and EU. Regardless of what the final relationship looks like the intervening

Month of uncertainty during the negotiations would surely have an impact on trade flows.

6. The UK overall deficit on the trade with rest of the EU is well known as it is a fact that net

migration flows have tended to see significant inflow in UK economy.

7. The UK openness and history as a financial centre has contributed to an enlarged balance

sheet relative to the flows however as UK exits would have an impact on the UK as a global

financial centre.

Advice for Exporters and Importers: - Exporters as well as Importers are advised to hedge their

Receivables as well as payables using mix of Forwards, Options and Options Structures. Traders

are advised to keep Implied Vols levels in mind while placing trades in GBP or GBP crosses.

Volatility Gauges 1M Implied Vols 3M Implied Vols 9M Implied Vols 1Y Implied Vols EUR/GBP 12.8 % 11.8% 13.2% 12.4% GBP/AUD 13.2% 13.2% 15.3% 14.7% GBP/JPY 19.5% 17.7% 18.7% 17.2%

See Volatility levels in GBP during talks of Brexit. Don’t under estimate

potential impact of Brexit on GBP.



Future of Block Chain Technology – Banking

The future of finance could be dominated by block chain technologies. A traceable

global currency complete with an efficient infrastructure will not only result in

massive cost reduction for all market participants, it will change global banking.

Bitcoin will do for payments what email did for communication.

Block chain, cognitive computing and cloud are some of the technologies that will

shape the finance industry the most in the digital age, banking and technology chief

executives told a financial conference on Monday.

IBM Corp's President and Chief Executive Ginni Rometty said that cognitive

computing, or computer systems that can mimic the way the human brain works,

will be the "ultimate way" finance firms will become more competitive in the

future.

What is changing?

Block chain will be adopted by central banks and cryptographically secured currencies will become widely used.

NASDAQ will launch block chain-enabled digital ledger technology that will be used to expand and enhance the equity management capabilities offered by its Nasdaq Private Market platform.

The settlement of currency, equity and fixed income trades almost instantaneously through permissioned distributed ledgers creates a

significant opportunity for banks to drive efficiency and potentially create new asset classes.

Control

New technologies such as block chain have the potential to reduce cyber risks by offering identity authentication through a visible ledger.

There is no reason why requirements for numbering, maintaining and

indexing records and communicating information provided in records could not be met through an electronic ledger system.

Car rental agencies could use smart contracts that automatically allow rentals when payments received and insurance information is confirmed

through a block chain record. A refrigerator equipped with sensors and connected to the Internet could

use block chain to manage automated interactions with the external world-anything from ordering and paying for food to arranging for its own software upgrades and tracking its warranty.

Small businesses could use block chain to create trusted trading platforms among themselves.

Block chain could potentially help bring robustness and transparency to the post-trade environment.

New technologies such as block chain have the potential to reduce cyber risks by offering identity authentication through a visible ledger.

A bank could pay the supplier instantly over the Internet. Block chain technology will alter timing on risk.

http://www.business-standard.com/search?type=news&q=Cognitive+Computing

http://www.business-standard.com/search?type=news&q=Finance

http://www.business-standard.com/search?type=news&q=Ibm

http://www.business-standard.com/search?type=news&q=Finance



Banks

Block chain will be adopted by central banks and cryptographically secured currencies will become widely used.

Block chain could replace central banks. Real risks remain for banks that choose to get involved with cryptocurrency

firms.

Block chain technology could reduce the UBS's infrastructure costs in cross-border payments, securities trading and regulatory compliance by as much as $20 billion a year by 2022.

The number of applications within and outside the banks could be reduced as the Block chain transaction contains all relevant information for the

successful transfer of assets and/or related contracts. Deutsche bank's economist sees block chain as a threat because of the lack

of the IT infrastructure to support the technology involved. Ethereum is much more general purpose than bitcoin and could be useful

for banks. The future of finance in many nations could be dominated by Bitcoin and

cryptocurrencies. A private block chain run by banks could end up as just "another cartel" and function as poorly as the payments consortium.

Banks could become the "custodians of cryptographic keys". The block chain could save lenders up to $20 billion annually in settlement.

Block chain technology could be used to bypass today's centralized financial infrastructure entirely.

By: - Rahul Magan, Chief Executive Officer, Treasury Consulting LLP



Demise of Turkish Lira (USD/TRY)

The lira dropped through 3.50 per dollar, extending its slump this year to 17

percent, the most in emerging markets behind the Argentine and Mexican pesos.

The decline is adding to pressure on the nation’s central bank to step in to stem

losses, even after its surprise interest-rate increase last week failed to have a

meaningful impact on the lira’s drop.

Turkey is at the moment the most exposed country to tail risks, both domestically

and externally," said Cristian Maggio, head of emerging-market research at TD

Securities in London, who cited a combination of weakening economic indicators

and a “grave" political situation. “The market has the upper hand because it knows

that the bank cannot defend the currency other than hiking," a move that has been

opposed by politicians including President Recep Tayyip Erdogan.

The lira fell as much as 2 percent to 3.5063 per dollar on Thursday. It also fell to a

record 3.7184 against the euro.

The lira has plummeted after Donald Trump’s victory sent U.S. yields soaring on

speculation inflation will rise. Turkey’s economy relies on foreign cash to finance

a current account deficit that is set to widen to almost 5 percent of output next year.

The risk that higher oil prices after OPEC’s decision to cut output Wednesday will

increase the country’s import bill is also piling pressure on the currency.

“It’s a terrible and fraught situation, but if the selloff continues at this pace, there

will be absolutely no choice for the central bank except to intervene,” Phoenix

Kalen, a strategist at Societe Generale SA in London said by e-mail, adding that the

selloff today has been compounded by a lack of liquidity.

A host of domestic factors including a crackdown against Erdogan’s political

opponents after a failed coup in July and the country’s involvement into the

Syrian civil war has exacerbated investor concerns. Credit default swaps on the

nation’s debt climbed 16 basis points to 306, the highest since February.

“If USDTRY goes high enough there will be no choice” for the central bank to raise

interest rates, Henrik Gullberg, a London-based strategist at Nomura International

Plc said by e-mail. “Where high enough is what we are all finding out right now.”

The chief economy adviser to Turkish President Recep Tayyip Erdogan, Cemil

Ertem, told Anadolu Agency that there was a campaign underway to depreciate the

lira in a rapid manner.

“The forex demand is very shallow, highly speculative and originates from abroad.

This is happening when the Turkish parliament has started to debate the

constitutional amendment. We have seen a campaign in a bid to depreciate the lira

in a rapid manner. This is not a conspiracy theory but an obvious fact,” he said.

Best @ Rahul Magan, Chief Executive, Treasury Consulting LLP



Year 2017 – USD Bull Year

There is a lot of debate whether there is a US dollar bull market or bear market.

Many believe, because of the monetary easing policies of the Fed, that the dollar

should be declining in value. The US currency is acting very strongly recently. It has

bullish energy. The key question we try to answer is whether the US dollar is in a

long term bull market.

Most commodities will suffer, without any doubt.

Gold and silver will lose value.

Stock markets can go both directions, it really will depend on intermarket

dynamics. In other words, stocks will follow the primary trend. If the US

dollar will be so strong that it will create panic, similar to what happened in

2015, then stocks will suffer. However, if the US dollar bull market will be

‘soft’, then we would not exclude strength in US stocks. In such a scenario,

emerging markets will likely be ‘contained’.

Global currencies will feel (serious) pressure.

CFTC data covering the New Year week show investors slowly rebuilding

overall net USD long positons, having run down exposure somewhat through

mid-December. Overall, speculative accounts have added more than USD3bn

to net USD longs since the December 16th data, taking the total net bull bet

to USD27.7bn in the latest week.

Positioning changes were, for the most part relatively

minor. However, bearish GBP sentiment increased more obviously as spec

accounts lift net GBP shorts by 7.7k contracts (or USD572mn) in the week.

Net CHF shorts increased by USD408mn, reflecting broader USD bullishness.

Net EUR shorts were raised modestly while net JPY shorts were trimmed

very slightly as shorts covered.

Net CAD positioning shows an interesting divergence in positioning as both

gross longs and shorts have been rising in the past few weeks leaving

aggregate positioning near flat still. CAD volatility over the holiday period

likely means that a significant break above or below the CAD’s recent range

may be needed to force a decision on who is right.

Net short AUD and NZD positions were lifted slightly this week but net AUD

positioning remains near flat and the NZD remains seemingly immune to

increasing bearish sentiment.




Volkswagen Emission Scandal

Six high-level Volkswagen employees have been indicted by a grand jury in the

company's emissions cheating scandal, as the company admitted wrongdoing and

agreed to pay a record $4.3 billion penalty.

In announcing the federal indictments and plea deal Wednesday in Washington,

the Justice Department detailed an elaborate and wide-ranging scheme to commit

fraud and then cover it up. At least 40 VW employees were involved in destroying

evidence, the government said. The penalty against the company is the largest ever

levied by the government against an automaker, eclipsing the $1.2 billion fine

against Toyota in 2014 over safety issues related to unintended acceleration.

VW installed software into diesel engines on nearly 600,000 vehicles in the U.S. that

allowed the engines to turn on pollution controls during government tests and

switch them off in real-world driving. The software, called a "defeat device"

because it defeated the emissions controls, improved engine performance but

spewed out harmful nitrogen oxide at up to 40 times above the legal limit.

U.S. regulators confronted VW employees about the use of the software following

tests conducted by university researchers that showed differences in testing and

real-world emissions. Volkswagen at first denied the use of the defeat device, but

finally admitted to it in September of that year. Even after that admission, the

government said, company employees were busy deleting computer files and other

evidence.

At a press conference Wednesday, Attorney General Loretta Lynch said

"Volkswagen obfuscated, they denied and they ultimately lied." The German

company pleaded guilty to conspiracy, obstruction of justice and importing

vehicles by using false statements in a plea deal. It also requires VW to cooperate

in a continuing probe that could lead to the arrest of more employees.

Government documents accuse six VW supervisors of lying to environmental

regulators or destroying computer files containing evidence.

In one case, one of the six engine development supervisors asked an assistant to

search another supervisor's office for a computer hard drive that contained emails

between them. Once the hard drive was found, another assistant was asked to

throw it away.

According to the plea agreement, the supervisors and other employees agreed to

deceive the Environmental Protection Agency and other regulators about diesel

emissions starting in May 2006, when they realized the engines wouldn't meet

emissions standards that were going into effect in 2007.

Under the direction of supervisors, VW employees designed engines with "defeat

device" software that would reduce emissions only when the vehicle was

undergoing a standard U.S. emissions test. They borrowed the idea from VW's

luxury division, Audi, which was developing different engines with similar

software.



In November 2006, some employees raised objections to the defeat device to the

head of VW brand engine development. That official directed the employees to

continue and warned them "not to get caught."

In 2014, VW employees learned about a West Virginia University study that

identified emissions discrepancies in VWs. Three of the supervisors and other

employees decided not to disclose the defeat device to U.S. regulators, despite

increasing questions from the EPA and the California Air Resources Board.

On Aug. 19, 2015, a VW employee ignored instructions from supervisors and told

U.S. regulators about the defeat devices. A supervisor confirmed the devices the

following month.

VW also has agreed to the appointment of an independent monitor to oversee

compliance and control measures for three years.

Volkswagen previously reached a $15 billion civil settlement with environmental

authorities and car owners in the U.S. under which it agreed to buy back up to

500,000 vehicles. The company also faces an investor lawsuit and criminal probe

in Germany. In all, some 11 million vehicles worldwide were equipped with the

software.




Commodities Call – Back to Basics

Escalating supply side issues have seen base metal prices start the year with a bang.

We believe the risk of increased disruptions in the copper market in 2017 has risen

considerably, with the market only partially factoring in the probability of

disruptions. Over 14% of the world’s supply is under threat from a strike action in

Chile this year. The early signs aren’t great, with wage negotiations at Escondida

already breaking down. Compounding this is the threat of concentrate exports

from Indonesia being halted this week.

The signs of tightness in zinc are also increasing. Treatment charges continue to

fall, forcing the closure of smelters in China. Any delay to the restart of 500ktpy of

capacity that Glencore closed last year could also exacerbate the tightness in zinc

and send prices higher.

In addition, a slightly weaker USD and continued exuberance about global demand

has also supported sentiment. In the short term, the implications of a Trump

presidency have yet to be realised. However, all things considered, we expect base

metal prices to remain well supported in the coming weeks. OPEC output. Reports

are emerging that OPEC signatories to the production cut agreement have already

commenced reducing output. However, the market will have to be patient as OPEC

won’t publish January data until 13 February. There is a possibility that the January

report (released on 18 January) may contain some commentary. Meanwhile, the

monitoring committee meets in Vienna on 21 January.




Chinese Yuan, Yen and USD

The dollar index retreated from its 14-year peak on Thursday following the biggest

two-day gain in the Chinese Yuan, on record. Further, mixed signals from the US

employment data failed to reverse this decline with the dollar index standing at

101.39- a three weak low. Markets braced for further volatility as they awaited the US

non-farm payroll data - due later in the day today.

The dollar also lost support from treasury yields as investors grew risk averse given

the uncertainties surrounding the incoming Trump administration. The 10-year

Treasury note fell to 2.353, compared to the peak of 2.640 reached last month.

The dollar fell by close to 1.8% versus the yen which was at 115.15 and the EUR/USD

pair was at 1.068 on Thursday.

Falling dollar/Yuan pair, pushes dollar down against other major currencies

In Hong Kong overnight borrowing cost rose to 38% from 17% on Thursday as the

Chinese central bank tightened liquidity by asking the nation's bank to withhold funds

from other banks. Also growth in Chinese service sector for December rose to 17-

month high, with both these events supporting the rise in the yuan. As a result, the

dollar fell against both the EUR and Yen on Thursday. Further the dollar index against

a basket of major currencies moderated to 101.39 – it’s lowest since 14 Dec.

Mixed signals from the US labour market

U.S jobless claims fell to a 43-week low last week signalling further tightening

of the labour market. Initial claims dropped by 28,000 to a seasonally adjusted

235,000. The four week moving average claims - a better measure of labour

market trends - fell 5750 to 256,750. Claims have now been below 300,000 a

threshold for healthy labour market for 96 consecutive weeks.

Tightening in the labour market encouraged the FED to raise rates last month

while the minutes of the meeting released on Wednesday signalled that the

pace of future hikes will be determined by the developments in the labour

market and fiscal policy.

However, ADP payrolls data showed that employment gains were moderate in

December. The U.S. non-farm private employment as depicted by the ADP

national employment report rose less than expected in December by 153,000

- sharply down from November’s 215,000, which was revised down slightly

from 216,000 and below consensus forecasts for an increase of 170,000.

Even though there isn’t a very close correlation between the ADP and non-

farm payrolls (due later today), it does give a directional guidance on private

sector hiring. This implies that today’s more comprehensive labour market

report may show some disappointment as well.



In other data releases, ISM US non- manufacturing index stood at 57.2 in

December as compared to an expectation of 56.6. The employment sub index

moderated by 4.4 ppt to 53.8 in December as compared to the previous month.

U.K. economy ended 2016 on a strong note

UK’s services-sector PMI grew at the fastest rate since July 2015 to 56.2 in

December from 55.2 a month earlier. While the pound depreciation helped in

boosting exports, demand remained healthy at home as well.

Previously, similar gauges of activity for manufacturing and construction also

recorded gains in December, suggesting that the British economy finished off

the 4Q of 2016 on a strong note.

While the incoming data on the UK economy has surprised on the upside and

defied expectations of a post Brexit slowdown, investors seem concerned

about the accelerating inflation and uncertainty over UK’s ties with the EU in

the future. The GBP/USD pair closed at 1.2418 on Thursday.



Forecast of Currencies ~ Editorial Desk

Currencies Q1’17 (EOP) Q2’17 (EOP) Q3’17 (EOP) Q4’17 (EOP)

AUD/USD .7200 .7200 .7100 .7000

NZD/USD .6800 .6800 .6600 .6400

USD/CAD 1.3300 1.3500 1.3600 1.4000

EUR/USD 1 .9800 .9500 .9200

GBP/USD 1.2600 1.2200 1.1800 1.1600

USD/JPY 125.00 120.00 118.00 116.00

USD/INR 68.5000 69.0000 69.5000 69.5000

Notes: Forecasts are done using respective models created by Editorial Desk covering Direct,

Indirects and Crosses.

Notes: - EOP stands End of Period

View of Editorial Desk: - FX Markets would be facing huge volatility during 2017. In that regards

Exporters are advised to hedge their forecasted receivables using Options Contracts like Range

Forwards (Exporters), Seagull (Exporters) and Buy Put Contracts.

It is always advisable to Corporate Treasurers to hedge their exposures using Seagull Contracts

when exchange pairs are getting highly volatile. Seagull contracts are nothing but the sum of Buy

Call + Range Forwards (Exporters) or Buy Put + Call Spread.

Risk Management Policies (RMP):-

We also need to understand that Risk Management Policy (RMP) of the Hedge Funds, Banks,

Trading Desks, and Corporate Treasuries plays a very important role in the Trading strategies.

As we understand that world is almost on the verge of big Neon Swan event henceforth Hedge

Funds Managers, Bankers, Traders and Corporate Treasurers need to start changing their

Hedging Strategies and start taking Options, Exotic Derivatives as to hedge their Receivables and

Payables covering Shorter and Longer tenors.

You are most welcome to connect with Treasury Consulting LLP in case you are having any

requirement covering FX markets. Our Foreign Exchange (FX) Consulting Desk advising

Corporates, Banks, Financial Institutions, Hedge Funds covering variety of Derivatives exposures.



Treasury Consulting LLP – Online Trainings Academy

Treasury Consulting LLP is launching various Trainings programs at Asia Pacific level covering

the following:-

Foreign Exchange & Derivatives Strategies – Beginner Program

Foreign Exchange & Derivatives Strategies – Advanced Program

Treasury Risk Management – Beginner Program

Treasury Risk Management – Advanced Program

Currency Derivatives

Interest Rate Derivatives

International Financial Reporting Standard (IFRS)

Basel III

Anti-Money Laundering

ISO Certifications – ISO 31000 , ISO 37001

Technical Analysis – Beginner Program

Technical Analysis – Advanced Program

Governance Risk & Compliance (GRC) – SOX, COSO Information Technology Audits (IT Audits) – COBIT , SSAE 16

Analytics

Financial Analytics

Cash Flow Analytics

Risk Based Modelling Analytics

Basel III Analytics

Treasury Analytics

Anti-Money Laundering (AML) Analytics

Business Analytics

Data Analytics

Working Capital Management

Capital Restructuring

Online Trainings Academy offers Online Courses which are weekend based and do

be delivered using webinar, webcast, Skype Conferencing. We would be sharing

Presentations, Case Studies, Excel Case Scenarios and Complementary Skype

Conferencing post completion of the Course.

You are most welcome to connect with us at 91-9899242978 (Handheld) , Skype

Connect ~ Rahul5327 , Twitter @ Rahulmagan8 ,

[email protected] , [email protected] or visit our

website – www.treasuryconsulting.in



http://www.treasuryconsulting.in/



Rahul Magan Profile:-

Rahul served as a Corporate Treasurer of United States, India based Information Technology

Enabled Services (ITES), Information Technology (IT) Companies – EXL Service Holdings, Inc. and

HCL Technologies Limited respectively. As a Corporate Treasurer handled key Treasury Desks

like Treasury Front Office Desk, Treasury Middle Office Desk, Treasury CFO Desk and Treasury

Research Desks.

Role as a Corporate Treasurer covers the following:-

Onshore & Offshore Treasury Risk Management Foreign Exchange Hedging

Cash Flow Hedging Fair Value Hedging / Balance Sheet Hedging Net Investment Hedging

Foreign Exchange Risk Management Derivatives Trading, Currency Trading ( Exchange Traded Markets ) Fixed Income Markets (Money Markets, Debt Markets, Capital Markets) Treasury Wealth Management (All Assets Classes in Financial Markets) ## Trade Finance (Domestic , International , Digital Trade Finance) Treasury Accounting (IFRS, US GaaP, IAS (International Accounting Standards),

Indian GaaP, IND-AS) Global Cash Management (Cash Flow Forecasting, Cash Reporting’s) Management Reporting's ( CEO Deck, CFO Deck , Investor Deck , Board Deck) Respected roles as a Corporate Treasurer

Now Rahul is serving as a Chief Executive Officer (CEO) of Treasury Consulting LLP which is a Limited Liability Partnership (LLP) firm incorporated in India having multiple Business streams. Business Streams of Treasury Consulting LLP:-

Trainings Domain Publication Domain Treasury Consulting – Knowledge Commerce Treasury Consulting – Analytics Desk Treasury Consulting – Foreign Exchange (FX) Consulting Desk B- Engagement Treasury Consulting – Financial Technologies (Fintech) Virtual Chief Financial Officer (CFO) Services Virtual Auditor Treasury Consulting – Asia Frauds Chapter Treasury Consulting Club – “ The Mavericks “ Treasury Consulting – Merchandise Store

Sitting today Treasury Consulting is serving clients across Asia Pacific level and also having 8 International Collaborations in place covering Asia, Africa, New York, Australia, Singapore, Hong Kong, Tokyo and Indian Markets. You are most welcome to connect with us at 91-9899242978 (Handheld), Skype ~ Rahul5327, Twitter @ Rahulmagan8, [email protected], [email protected], [email protected] or visit our website – www.treasuryconsulting.in






YOU Tube Channel – “Foreign Exchange Maverick Thinkers “

Treasury Consulting LLP owns You Tube Channel – “Foreign Exchange Maverick Traders “having

more than 275 videos covering diversified topics. Sitting today our You Tube Channel is having

over 275 videos, 1700 Subscribers, 250 K Reviews, 5 Million Minutes watched, 5000 Likes, 8000

Comments, 5000 Playlists.

To join our You Tube Channel simply open You Tube and type “ Rahul Magan “ and You Tube

would takes you to our Channel having 275 Technical Videos.

We are planning to cover 300 Videos by Dec 2016, 450 by Mar 2017, 600 by June 2017 and 900

by Dec 2017.

Foreign Exchange Risk Management

Treasury Risk Management

Fixing Indexes ( Interest Rates , Non Interest Rates Fixings )

Accounting Standards ( IFRS, US GaaP, IND-AS, Indian - GaaP )

Derivatives Instruments ( Plain Vanilla, Exotic Derivatives )

Fixed Income Markets

Business Valuation

Enterprise Risk Management (ERM)

Investment Banking

Interest Rate Derivatives



Treasury Consulting Club - Launch of Maverick Club

Treasury Consulting LLP owns a Club - “The Mavericks “across all segments in Industry. The

purpose of the Club is to sync people with practical world. Club would be charging Quarterly fees

of Rs 2000 where by Club would be offering following unique facilities:-

Update on Foreign Exchange Markets

SMS covering tips on Foreign Exchange Markets

Weekly email covering all important developments in Currency & Derivatives Markets

Subscription of the Magazine “The Maverick Treasurer “along with CD of the Magazine

which would cover all aspects in Video formats.

Updates happening in Law section like Accounting Laws as well as non-Accounting Laws.

Accounting Laws covering the following :-

IFRS

US GaaP

IAS ( International Accounting Standard )

IND-AS, Indian GaaP )

Companies Act 2013 – Internal Financial Controls Internal Risk Reporting Frameworks

Sarbanes Oxley Act , Unites States

COSO Risk Management Framework

Quarterly Conference, workshop on agreed topics amongst all members.

Members are welcome Editorial Desk regarding membership of “Maverick Club” by writing to

us at 91-9899242978 (Handheld), Skype ~ Rahul5327, Twitter @ Rahulmagan8,

[email protected], [email protected] or

[email protected] or visit our website – www.treasuryconsulting.in

Best,

Rahul Magan


Country Director, International Institute of Certified Forensics Investigation Professionals Inc.

Country Director, Association of Certified Forensics Accounting Professionals

91-9899242978, Skype Connect ~ Rahul5327, Twitter @ Rahulmagan8





the maverick treasurer - january 2017 (pdf version)

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