Download Improving Profitability by Managing FX Risk

PROTECTING
AND IMPROVING
PROFITABILITY
BY MANAGING
FOREIGN
EXCHANGE RISK
RISK MANAGEMENT
WU Business Solutions today
AIM: Be the leading provider of cross-border cross-currency payments and services to businesses globally
100K
130
TO
CLIENTS IN 31
CURRENCIES TO 200
COUNTRIES
COUNTRIES
SENDING
4K
TRADE PAYMENTS
$80B
A DAY
ANNUALLY
MAKING
PRINCIPAL
Source: Study Oxford ME Economics, April 2013
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RISK MANAGEMENT
Technology eliminates limitations enabling accelerated
international growth
Did you know**…
Visibility
Instant insights
need to manage FX exposures; and
track payments to forecast cash flow
Certainty
Greater certainty of costs
need to accurately forecast profits
and foreign cash flow
Efficiency
Reduce time & effort
need to manage international payments
?
track on spreadsheets
31%
don’t track exposures
50%
don’t know value
78%
of foreign invoices until
time of payment or after
negatively impacted
if cost of payables runs
higher than planned
91%
On average, spend 1 day per week
managing international payments
* Source: SME Study Oxford Economics
**Source: East & Partners 2013
S
M
T
W
Th
F
S
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THE POWER OF PAYING IN LOCAL CURRENCY
LOCAL CURRENCY PAYMENTS
Three time and money saving benefits in 3 steps
Improve Profits
Strengthen Relationships
• Negotiate preferable pricing and
payment terms
• Foreign suppliers prefer to receive
their local currency
• Eliminate costs associated with
maintaining foreign currency accounts
• Streamlined payment process can
give you a competitive advantage
Gain Control
• Create certainty of FX conversion
• Create efficiency with faster more
transparent payments in in local
currency
Starting to pay in local currency is simple.
1
Negotiate
• Request non-USD invoices
• Suggest a fair local currency
price
• Negotiate more favourable
terms
2
Pay
• Pay in 130+ currencies
3
Plan
• We’ll help build a simple plan to
reduce currency exposure and create
certainty around profit margins
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RISK MANAGEMENT
FX volatility puts businesses at risk

Currency markets trade over $1.5 trillion each day –
more than the stock market trades annually

2015 experienced high FX market volatility

Global names lost huge profits
Impact on businesses?

Difficult to track currency fluctuations and contain costs

Hard to forecast cash requirements, puts profit margins at risk

Struggle to manage currency exposures on spreadsheets
GBP/USD – 2015
GBP/USD depreciated by 8% up to
Jan 2015. A $500,000 invoice could
have cost $540,000
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4-STEP PROGRAM
RISK MANAGEMENT PROGRAM
Reduce exposure with a 4-step Risk Management Program
Design a program to support your short and long term foreign currency requirements
STEP 1: Review Exposure
Protect profits
from currency fluctuations
Gain full visibility and certainty
over your FX exposures with the
WUBS Cash Management Platform
Identify where your profits
are at risk with help from
the Cash Management Platform
STEP 4: Execute Plan
STEP 2: Set Goals
Implement the right combination of
hedging tools to meet your goal.
Work with our specialists and regularly
asses performance
Work with a specialist to define
your short and long term risk
management goals
STEP 3: Develop Strategy
Create certainty of costs
Build a simple plan with a
variety/mixture of products to reduce
currency exposure and create certainty
around profit margins
Grow business in international
markets and protect your
company from exposure
COMPLETE SOLUTIONS
RISK MANAGEMENT
Reduce the risk of foreign payables and receivables
Visibility of exposure
Cash Management creates visibility
into exposures and ability to forecast
cash flow.
Simply pay a foreign invoice
Get payment certainty in volatile markets
SPOT payments let you buy or
sell foreign currency to pay your
international invoices
Forward Contracts lock in an FX rate for the a
future date to secure margins even if the
market moves
Deal when the rate hits
your target spike
Protect and Participate
Minimize costs
Cross-currency payments avoid
unnecessary currency conversion.
Use Market Orders to make a
payment when a target rate is hit.
Options provide protection from adverse
market developments, and gives you the
opportunity to participate in favorable moves
No need for a foreign bank account
Hold money in 40+ currencies for up
to 90 days in our Holding Balance
foreign currency accounts.
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FORWARD CONTRACTS - US
RISK MANAGEMENT
Forward Contracts lock-in today’s exchange rate for a
future time period
Protects profits from fluctuating rates
Provides certainty around costs and profits
X Unable to benefit should rates move your way
Why use a Forward Contract?
 A EUR€200,000 payment in April time would cost
USD210,000 at a rate of EURUSD1.050.
 A possible rate of 1.100 in July would equal
USD220,000 - that is USD10,000 more.
 Currency volatility can have serious repercussions
EURUSD1.150
EURUSD1.250
Rate in July 1.10
EURUSD1.100
You could have a fixed
rate at 1.05 rate using a
EURUSD1.075 Forward
EURUSD1.050
for international businesses
Apr 15
May 15
Jun 15
Jul 15
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CURRENCY OPTIONS
RISK MANAGEMENT
Bottom line protection, plus flexibility
Simple hedging solution used by
many businesses today
Can be used alone or in combination
with other hedging tools to create a
powerful risk management strategy
Key benefit – protection from adverse
market developments, opportunity to
participate in favourable moves
Diverse range of currency Options
available, suitable for businesses
of all sizes
N.B. typically you must agree to a protection rate that is less favourable than the current market forward rate, in
exchange for the potential participation you might achieve.
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HEDGING SOLUTIONS
RISK MANAGEMENT
Demystifying Options: Flexible hedging solutions
 If you knew the exchange rate was only
going to move in your favour…?
 If you knew the rate was only going to
move against you…?
 …. When was the last time the currency
markets only moved in one direction for
any period of time?
 Currency options have been designed to
cater for every other eventuality
Myths
 Options are expensive
 Options are only for speculation
 Options are only for big corporates
Facts




Options structures are usually zero cost
Protect a worst case rate like a forward
Allow you to also participate in upside
Now used by your direct competitors
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STRATEGY IN ACTION
RISK MANAGEMENT
A ‘rolling hedge’ approach to risk management strategies

Risk specialists help ensure you have the right blend of Forwards, Options and SPOT trades in place

Overall strategy is to drive outperformance, not to predict the market

Each month your exposure is reviewed to ensure your hedge profile is aligned with your business goals

If required, leverage the SPOT market to ‘top up’ your baseline hedge
Baseline hedge
As the month “rolls off”, you
top up the protection in line
with the baseline hedge%
Floating rates (SPOT)
100
100
80
80
60
60
40
40
20
20
0
0
Month Month Month Month Month Month Month Month Month Month Month Month
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2
3
4
5
6
7
8
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10
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1–6 months 80% hedged `
7–12 months 50% hedged `
Month Month Month Month Month Month Month Month Month Month Month Month
1
2
3
4
5
6
7
8
9
10
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1–6 months 80% hedged `
7–12 months 50% hedged `
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SUMMARRY
WU EDGE PLATFORM
In summary
 Technology is helping to eliminate limitations for businesses to expand globally,
however expansion creates complexity in managing international payments
 Fluctuating exchange rates and a changing landscape of legislation create
challenges to trading profitability when making and receiving international payments,
and potentially create cash flow unpredictability
 Companies are increasingly looking for long term partners to support short and long
term foreign currency requirements with risk management programs
 WU EDGE platform is a free technology platform that enables companies to pay in
local currency, keep abreast of currency volatility and exposure, engage with a
partner to create a cash management strategy
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