FX Reset: Risk Reduction Trade-offs & Hedging Costs in the Crisis Market

Kyriba.com Copyright © 2020 Kyriba Corp. All rights reserved.
FX Reset: Risk Reduction
Trade-offs & Hedging Costs in
the Crisis Market

Today’s Presenters
2
Andy Gage
VP of FX Risk
Management Solutions
Kyriba
Chad Wekelo
Principal
Actualize Consulting
Brian French
Director, Center of
Excellence
Kyriba

Overview of Today’s Webinar
Teach you how to (with the help of Cost and Risk Efficiency Analysis)
• Assess full FX exposure, risk, and cost
• Determine the impact FX may have based on Value at Risk (VaR)
• Identify specific steps to further reduce cost and risk
• Keep the C-Suite well-informed and confident in your team

Market Insights:
FX Volatility
Surging
“Financial markets have
suffered a rude awakening
to notions that volatility
was a thing of the past.
We’re now seeing the kind of
market dislocation not
witnessed since the 2008-09
global financial crisis,” ING
analysts said, describing the
set-up as a “perfect storm”
for currency markets.
4

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Market Insights: Very Dynamic Market,
USD strengthening across a wide portfolio of currencies
5
New Currency Crisis
Race to the Top
Budget War
Past Currency Crisis
Race to the Bottom
Trade War

FX Risk Is on the Minds of CFOs
• CFOs and treasurers agree: risk management needs improvement and FX risk is the
most significant area of concern
58% of CFOs in larger businesses
say that FX risk management is one
of the two risks occupying the
largest proportion of their time
72% of treasurers say FX risk
management is one of the most
important aspects of their job
51% of CFOs say their
business is least well-placed
to deal with FX risk
70% of CFOs say their company
has been hit by unhedged FX
exposures in the past two years
that could have been avoided
!

8

What does this mean to Corporate FX Risk
Management Team?
Long-Term and likely
Short-Term Forecasts
no longer reflect the
new reality
9
Treasury balances
immediate-term liquidity
needs while protecting the
firm from surging currency
volatility
Balancing hedging objectives
with cost of hedging and
potentially changing hedge
tenors
Being prepared for lots of
questions from FP&A and
the C-suite

Risk Management Challenges
Challenges Solution
z
Reduce Financial
Risk
Reduce Transaction
Costs
Hedging and FX costs impact bottom line
Inability to source accurate, timely exposures
from ERP systems and people can impact
earnings
Increase Efficiency &
Controls
End-to-end automation for ease
of compliance, auditability and FX
trade execution

TALKING FX WITH THE CEO, CFO & BOARD
• Treasury teams need to improve the quality of communication regarding
foreign exchange risk between the treasurer, CFO and the board to get better
guidance on how to manage currency risk in alignment with the risk appetite
of the C-suite and the board.
• Questions board members struggle with:
• What is the firm’s risk from foreign exchange?
• What is the cost of managing the firm’s foreign exchange risk?
• Board members prefer the answer to those two questions to be from an
independent source.
• Boards don’t really understand the complexities for FX, but they do
understand the concept of an “efficient frontier”.

Kyriba FX CoRE™ ANALYSIS OVERVIEW
• Kyriba Foreign Exchange Cost and Risk Efficiency (CoRE) Analysis benchmarks your
current FX exposure, determines the potential impact to earnings and provides
recommendations to reduce risk and costs.
• Identification and quantification of existing balance sheet exposure and risk and
visibility to their source
• Dynamic analytical environment design to help reduce cost and improve the
efficiency of FX management processes
• Companies rely on the CoRE curve not only for what it depicts, but because the
underlying data has been subjected to rigorous analysis and validation to ensure its
completeness and accuracy

Kyriba FX CoRETM CURVE
• Kyriba FX CoRE™:
• Helps one understand and communicate the most efficient strategies to mitigate
currency exposure from the perspective of risk vs. cost of (or income from) hedging.
• Depicts the “risk” of the portfolio of currencies impacting the financial statements at
various levels of hedging cost (or income)
• The ‘y’ axis represents “risk” as measured in VaR (Value at Risk).
• The ‘x’ axis represents the cost of (or income from) hedging as measured by the interest
rate differential (IRD)*.
• The key is to have confidence in the completeness and accuracy of the underlying data.
Without this confidence, the CoRE curve is less meaningful.
* IRD ( Interest Rate Differential ) definition: The difference in interest rates between two currencies in a pair.

CoRETM ANALYSIS
Company 1 February

Thank you for joining us
today!
Treasury@kyriba.com

FX Reset: Risk Reduction Trade-offs & Hedging Costs in the Crisis Market

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FX Reset: Risk Reduction Trade-offs & Hedging Costs in the Crisis Market