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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 2 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 3 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 4 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 5 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. 7 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 8 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. 9 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 10 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 1 2 3 4 5 6 7 8 9 10 11 12 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 11 12 1–6 months 80% hedged ` 7–12 months 50% hedged ` 11 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 12