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Who should attend
- Treasury professionals who work on managing FX risk in an international corporate in a managerial role, as a dealer or in a control function.
- Finance Directors and Financial Controllers in an international corporate with significant FX exposure who wish to better understand the context and background of foreign exchange.
About the course
This course will look at the three main types of FX risk, how to manage them and the importance of formulating an appropriate hedging policy suitable to your organisation’s specific needs. The contextual aspects of FX risk such as accounting and reporting will also be covered as well as how the use of a Treasury Management System can add value to your company.
Exercises and real life case studies are used to illustrate how FX risk management is applied in practice.
By the end of the course, you will:
- Understand the dynamics and drivers of different categories of FX risk, such as cash flow, intercompany lending, translational and balance sheet risk.
- Be able to develop an FX risk management program for different categories, especially to build an end-to-end operating model
- Learn how to make the most of a Treasury Management System in managing FX risk and streamline work flows
- Have knowledge of different ways of reporting FX, the pros and cons of each option and be able to guide your organisation in making a decision
- Be able to critically assess and review a corporate’s FX risk management policy
- Attendees will deepen their understanding of an area of Treasury Risk Management which is growing in importance as well as complexity.
- Delegates will learn how to put theory into practice, design a risk management program for different categories of FX risk and how to manage it on an on-going basis.
- Your company will benefit from operational rigour, best practice operations, and P/L predictability to their FX risk management process as well as be able to leverage your IT architecture.
Day 1 – Understanding FX
Start time: 8:30 am End time: 5:00 pm
Nature of FX risk in the international enterprise
- Where FX impacts the business
- The hedging dilemma
- Why FX forecasts can be wrong
Recent developments impacting FX risk
- Increased market volatility (Euro crisis, Brexit, international trade conflict)
- Regulation (Dodd Frank, EMIR)
- Global economy transacts increasingly cross border
- Understanding the nature and impact of illiquid currencies
- Managing FX risk in emerging markets
- Corporate policy for illiquid currencies
Practical exercise: Designing a corporate policy for FX risk management
Cash Flow FX exposures
Understanding transactional FX risk
Economic risk versus accounting exposure
- Cash impact versus book values
- Commercial risk
- Non-operating assets and investments
FX instruments and their use
- Ease of use, depth and liquidity of market
- Valuation and accounting
- The case in favor of “plain vanilla” instruments: keep it simple
Utilising Treasury Management Systems
Budgeting for currencies
- Setting FX rates for planning purposes
Case study: Designing an FX hedging program in a corporate organisation
Underlying FX exposure
- What risk to hedge, and what to retain
- Forecasting exposures
Defining risk and risk management targets
- Risk as a proportion of exposure
- Value at Risk approach
- Market driven approach
Case study: Continued
- Defining governance
- Exposure monitoring
- Roles and responsibilities: who does what?
- Definition and documentation of hedged risk
- Effectiveness testing methodology
Day 2 – Managing currencies
Start time: 9:00 am End time: 5:00 pm
Intercompany FX risk
Understanding intercompany FX
- Intercompany trading versus holding investments
- Management recharges
- Balance sheet FX risk
Pros and Cons hedging the balance sheet
P/L and cash impact
- Concept, benefits and operating principle
Designing a Netting program
- Defining a Netting process
- Payables versus receivables driven
- Issue resolution
- Special purpose Netting system versus ERP Netting-module
Managing intercompany lending
- Relevance in the international corporate
- Concept and corporate policy
- Terms of loans and loan documentation
In-house bank / Treasury Centre
Concept and scope
- Default intercompany lender
- Netting Centre
- Cash pool leader
- Treasury Business support
Domicile and its impact
- Choosing a functional currency
- Legal / regulatory aspects
Practical exercise: Operating model for an in-house bank
- Cash risk versus FX exposure
- Defining a risk portfolio
- Governance and control
- Utilising Treasury Management Systems
Disclosing FX: pros and cons of different options
- FX hedging impact included in operating result
- FX hedging shown as a separate line item
Practical exercise: examples of different reporting approaches
Closing remarks: why FX is notoriously controversial in a corporate organisation
Nicholas (‘Nick’) Franck has worked 30+ years in corporate treasury, trading, transaction banking, and treasury consultancy: 19 years in multi-industry corporates (IBM, International SOS, Agility Logistics and Oriflame Cosmetics;) 7 years in banks (Merrill Lynch and Chase Manhattan;) 6 years in t...
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