Trésorier/Treasurer magazine - N°86 - Jul/Aug/Sep 2014 - (Page 45)
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CORPORATE FINANCE
Making Exposures across the
Company Visible
Having a single solution that captures
all of the exposures across the group is a
key objective for many treasurers. Once a
company identifies its interest exposures, commodity exposures, and foreign
currency exposures, another challenge is
- JUL
dealing with multiple data systems as
companies need to understand their
exposures. For example, a risk manager of a UK based organisation may
need to consider the FX risk associated with those commodity exposures.
This company might be buying or
selling commodities that are routinely denominated in USD, whereas
their functional currency may be GBP
,
bringing on more FX risk that needs
to be managed and hedged. Treasury
and Risk Management (TRM) solutions
delivered as Software-as-a-Service
(SaaS) technology with advanced
commodities capabilities (i.e. not
just FX or interest modules of a TMS)
will be able to capture the commodity exposures in terms of notional
quantity (tones, barrels, pounds etc.)
and determine the price risk and the
associated FX risk, automatically. This
ensures that FX hedging policies are
really being applied to all FX exposures across the group.
Determining the quantity of the exposures is necessary, but also important
is the forecasting of prices.
N°86
and diesel, but also to emissions as they
look to reduce their carbon foot print.
Retailers are exposed to fuel costs for
deliveries as well as many soft exposures
- wheat in the cereal, in the biscuits,
and in the beer they sell, for example.
Beverage companies not only are exposed
to the ingredients to make the beverage,
but also the paper, aluminium and plastic
costs.
Commodity exposure management is
a complex area, but getting on top of
commodity risks can have a significant
financial impact. Thus, treasurers should
review the following to determine the
Return on Investment of commodity risk
management:
1. Making exposures across the company
visible
2. Monitoring and assessing risk correlations
3. Hedging commodity risk
-
A recent gtnews risk survey indicates
that 44% of treasurers are already
responsible for commodity risk management.
This is the case for a few reasons:
* Greater need for global visibility of all
financial risks
* Understanding the correlations
amongst different asset classes
* Optimising hedging strategies for
significant cost savings
* Growing volatility of commodity prices
around the world
Previously, many companies - commodity consumers - were reluctant to hedge
commodity price risk as they believed
their shareholders expected them to
be fluctuating according to the market prices. However, the volatility and
subsequent impact on the bottom line is
no longer sustainable, and hence needs
to be actively managed and hedged.
Similarly, the banks that are financing
those companies are not in favour of this
volatility and are looking for more secure
profit margins.
This is relevant not only for consumers
and producers of commodities, but also
for many organisations that have some
exposures to non-financial items. For
example, airlines are exposed to jet fuel
LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE
Treasury is in different stages of transformation
around the world, and what is included in
treasury's remit is different too. There is a notable
increase amongst multinational corporates for
treasury to manage commodity risk.
/ AUG / SEP 2014
Managing Risks
from Aluminium
to Zinc
45
Table des matières de la publication Trésorier/Treasurer magazine - N°86 - Jul/Aug/Sep 2014
Couverture
SOMMAIRE
EDITORIAL
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW David Holland
FOCUS
FORUM
CORPORATE FINANCE
15 MINUTES WITH INTIX
THE FINANCIAL RISK OBSERVATORY
NEWS
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