Figure 1: Yusen Logistics forex analysis, pre- and post-automation By period
• Maestro implemented in February 2020. Maestro implemented
• The system aims to reduce foreign exchange risk and enhance liquidity management by integrating balance sheet hedging with cash management.
• Prior to executing a new contract, the data is analysed and any under/over variance from the previous week, based on the latest position, is adjusted.
• Previously, non-deliverable forward contracts were placed based on the anticipated closing position of key balance sheet items at the period-end.
02 2019 04 2019 06 2019 Year-to-date cumulative Maestro implemented
Results: • Movement in both realised and unrealised impacts have remained more static period by period.
• Balance sheet position is better protected (the only exposure relates to timing difference between trade execution and actual account closure) as forward trades are based on actual data, not subjective estimates.
• Flexibility to amend trades prior to execution enable currency purchases/sales at most advantageous rates.
02 2019 04 2019 06 2019 08 2019 10 2019 12 2019 02 2020 04 2020 06 2020 08 2020
Realised Net
Unrealised Source: Yusen Logistics 08 2019 10 2019 12 2019 02 2020 04 2020 06 2020 08 2020
• Closing balances were estimated based on a combination of factors. However, any difference resulted in the variance value being exposed to any exchange rate movement in the period.
Tellwright acknowledges that accounting challenges remain, but the reduced volatility of returns and automated workflow mean the finance team can dedicate resources to specific targeted areas to help overcome them. “There are still risks of course. Predicting currency movements is a very difficult business, but we are getting much more consistency in our numbers,” he says.
A good starting point for FX automation can come from the highest level, such as balance sheet hedging. However, as the journey proceeds, the right solution allows a treasury to implement fully integrated and synchronised workflow solutions across numerous FX activities, including hedging future expected exposures, cross-currency cash management, and cross-border payments and receivables.
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There are also less obvious areas where automation can help. “While most treasuries manage their major currency cash flow effectively, they often have a lot of small exposures in regional currencies,” observes Bhavna Sahay, Deutsche Bank’s Head of Corporate e-FX for Western Europe ex DACH. “By identifying these balances and optimising them, within established parameters and thresholds for action, we are able to automate that process.”
The next step With an efficient and optimal hedging programme in place, what is the next step? It depends on the individual firm, but for Yusen it is getting bank balances automated. “We are working on this now, which will mean it is one less thing to worry about because our balances will be factored into our hedging programme,” Tellwright explains. “It’s the next step in simplifying
our process and allowing us to focus on scenario planning and modelling for further changes to how we operate.
“Automation allows us to access the right data, and this is where the proactive, consultative approach really helped us. The bank talked to us about new ideas and what we could do together to help our business. This may have been about new processes or just pieces of data, but it enabled us to get our message across to non-financial people in the business and highlight how we are mitigating the risk around our FX exposures.”
Rachel Whelan, Managing Director, Global Head of Transactional FX Product Management and APAC Head of Cash Product Management at Deutsche Bank, stresses the value of a holistic solution that links the hedging strategy to payment flows. “Using the hedge as part of the cash
Images: iStock, Yusen Logistics
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