Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016 - (Page 44)

LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE - N°94 - JUL / AUG / SEP 2016 EFFICIENTLY MANAGING CROSS-BORDER PAYMENTS IN TURBULENT TIMES 44 2015 was an epic year for financial markets; we saw extreme incidences of volatility, multi- year lows for a multitude of currency pairs, an unforgiving commodity price plunge, numerous currency devaluations and the Federal Reserve finally being in a position to hike rates in December after nearly a decade of rate cuts and stagnation. 2015 price action predominantly emanated from Central Bank policy divergence as well as a shift in risk. With regards to risk, the trend that primarily played out in 2015 is commonly referred to as "the flight to safety", which sees market participants buy what they consider to be safe assets: in 2015 this largely turned out to simply be USD. This flight to safety was heavily motivated by the aforementioned fall in commodity prices. The drop in prices left many commodity-reliant economies in markedly vulnerable positions, leading some (e.g. Angola, Azerbaijan, Kazakhstan) to ultimately buckle under the pressure and devalue their currencies. Whilst others did not resort to devaluation, we did see some countries (e.g. Nigeria) implement new policy changes in an attempt to diversify their economy and restore investor confidence, whereas others defended their currency through regular intervention (e.g. Brazil, Zambia) by tapping into their currency reserves. Irrespective of the coping methodology adopted by the respective Central Banks, the end result to 2015 was ultimately the same: their currencies were in a much weaker position vs USD than where they started in January 2015. As a follow on to 2015, Q1 2016 has already dealt the market a healthy dose of volatility. Although the overwhelming trends are not completely in line with what we saw last year, risk is still a vital element of day to day activity and has the ability to trigger significant market moves. Financial market volatility in recent times has encouraged a renewed interest into how cross-border payments can be effectively managed; many institutions have been forced to re-evaluate their processes and have deemed it necessary to change their traditional approaches. This shift in mentality has primarily started to manifest itself in a number of ways: 1.A renewed interest in trading local currency vs hard currency (i.e. USD, EUR, GBP): The vast majority of financial institutions nowadays have electronic trading platforms that can be used to transact and settle in local currency. Over the years, capabilities in procuring local currency have improved dramatically and consequently, accessibility to today's "true emerging markets" i.e. Rwanda, Haiti, Burundi, Dominican Republic is nearly on par with that of the "old emerging markets" i.e. India, Brazil and South Africa. This accessibility gives organisations the invaluable opportunity to participate in the conversion process, ensuring that they have control and transparency with respect to the rate at which funds are converted, as well as the notional to be received by the beneficiary onshore. The long-established 'traditional' method of simply sending hard currency onshore effectively exposes organisations to the potential of uncontrolled losses. However, by electing to engage in the procurement process themselves, organisations can efficiently use their hard currency as an asset in negotiating clear, transparent costs and exchange rates in advance. This method also allows an organisation to negotiate competitive exchange rates from a panel of chosen market participants, instead of relying on a sole rate source.

Table of Contents for the Digital Edition of Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016

Table of contents
INTERVIEW Philippe Gelis - Kantox - Fintech and the future of banks
Lost in transformation
Everything has a price – a transfer price
Treasury Survey - an unprecedented picture of treasury activities in Luxembourg
The impact of negative rates on Treasury and Risks Management Systems
Towards reporting harmonisation?
Understanding the Treasury impact of BEPS
Impacts of Single Resolution Mechanism and Bail-in for European Banks
Supply chain? Not concerned?
Collateral management and the Corporate Treasury function.
Efficiently Managing Cross-Border Payments in Turbulent Times
How Mid-Market Companies Can Efficiently Manage Enterprise-wide FX Risk as they Grow
Investing surplus cash in repos
A wind of technology changes in the treasury management world
Invoicing can be fun….?
Comment améliorer la performance des fonds de pension européens

Trésorier/Treasurer magazine - N°94 - Juil/Août/Sept 2016