Key market trends impacting treasurers
Corporate treasurers are facing another complex market environment this year. The pandemic has created significant economic uncertainties, which have been compounded by geopolitical tensions, supply chain disruptions, and changing regulatory regimes, resulting in high inflation. In this article, we will explore some of the key market trends that are likely to impact corporate treasurers in the coming years. In 2022, according to Reuters, major central banks hiked rates at the fastest pace (and by the largest amount) in more than 20 years. The U.S. The Federal Reserve hiked 7 times, totaling 425 bps for the year, while the Bank of England (BoE) hiked 350 bps across 9 hikes and the European Central Bank (ECB) hiked 250 bps across 4 consecutive hikes. 2023 has already seen several hikes, and the year is far from over! All of these in order to fight against inflation. “One might wonder whether the end justifies the means.” However, with recent news, one might wonder whether the end justifies the means… We are all glad that the financial system is much more resilient compared to the 2008 financial crisis, after the numerous reforms banks had to go through, allowing them to have high levels of capital today to pass the ongoing storms with a shaky banking environment and market turmoil. In my view, what is going on is a good (and necessary) refreshing cure that yes, banks can still go bust, and counterparty risk is still all around us. “A good (and necessary) refreshing cure” As cheap/zero-cost money came to a brutal end after more than a decade of free money, corporate treasurers have (again) had to adapt to this new situation. The current environment results in a tighter debt market, with foreign exchange hedging getting more expensive. The recession risk, together with uncertainty, puts higher focus on cash forecasting (like if it weren’t already priority #1) For companies not too leveraged (i.e., not too reliant on debt to fund their activities), this shock can be absorbed, while SMEs struggle with inflation and stricter access to funding combined with higher borrowing costs. “High interest rates are not only a consequence of rate hikes by the central banks to fight inflation.” Treasurers need much more active management of cash, both on the borrowing side and the investment side. As a result, money market fund providers are getting a lot more attention, and requests for short-term deposits are increasing all over the place. The duration of investments has changed as well (impacted by the speed of rate hikes, and the uncertainty). However, there’s no free lunch: high interest rates are not only a consequence of rate hikes by the central banks to fight inflation. On the horizon are also higher counterparty risks and, maybe, a liquidity shortage. Therefore, treasurers will need to find the right balance between a risk-adjusted return on their excess cash and simply benefiting from almost “risk-free” returns. “Expect volatility to persist in the short term.” In conclusion, Corporate treasurers need to consider implementing and updating their hedging strategies to mitigate the impact of currency fluctuations, closely monitor interest rates and counterparty risk to ensure that they are managing their cash and debt portfolios effectively, and in good household manner, so that they can position their companies for success in the coming years. They will need to stay vigilant and adapt to changing market conditions, and expect volatility to persist in the short term. Read more from Benjamin Defays Join our Treasury Community Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Benjamin Defays
Getting to Know the Animal of your Corporate FX Risk
This article is written by GPS Capital Markets Over history, people have developed systems for measuring time and keeping track of information. From cataloging the patterns in the night sky—like constellations—to creating educational anecdotes to pass on wisdom about life, love, or economics—like fables or parables—many of these metaphorical systems have featured animals. Like in Aesop’s fable “The Crow and the Pitcher,” when the bird puts pebbles in the pitcher, it raises the level of water until he can drink. The tale helps pass knowledge on about how to make steady progress working through problems. GPS approaches FX exposure analysis in the same methodical way. As we enter the Year of the Dragon, we can look at the categories of FX exposure and ways to approach hedging them by comparing them to the Chinese zodiac. Are you approaching your balance sheet exposure with the patience of an ox or the cunning of a snake? Are you ready to channel the luck of the dragon to push your company forward this year? Read through our list to learn more about knowing the animal of your corporate FX risk and taking inspiration from the positive qualities ascribed to it to respond to risks. The Pig: Transaction Exposure If the financial services industry had a mascot, a pig would be a great choice. With its long association with reliability, it’s no wonder kids learn to save using piggie banks. In the Chinese zodiac, people born in the year of the pig are good in business dealings. There’s even a story about a pig and chicken who want to start a business: The chicken says she will contribute her eggs and expects the pig to hand over the bacon. The pig in this story is the business partner with the most to lose and a life-and-death commitment to getting the business to succeed, whereas the chicken is a fair-weather partner who will likely cut and run when things get rough. Transaction exposure is the day-to-day risk associated with invoices and contracts. A pig-like approach to foreign exchange is what we at GPS Capital Markets provide. Each of a client’s risks is assessed, documented, and hedging strategies put in place to save and optimize practices over time, day by day, invoice by invoice. With the reporting and analytics capabilities of FXpert, regularity and dependability in your FX trading and hedging strategies improves steadily. The Rat: Translation Exposure One of the main types of FX exposure is Translation Exposure or Exchange Rate Exposure. This exposure takes place when financial statements (balance sheet, profit and loss) must be translated from a subsidiary’s local currency into the parent company’s currency. The consolidation necessary to assess the company’s accounts reflects the ethos of the Chinese zodiac rat. Rats, like squirrels and other rodents, scavenge, consolidate, and guard resources. Consolidation gives confidence to investors and board members. As the translation of funds occurs, it’s worth leaning into the positive aspects of the Chinese rat, being meticulous in accounting for exposure risk before it becomes a real problem on your balance sheet, and putting plans into place to mitigate losses as a result. Learn more about hedging. The Ox: Economic (or Operating) Exposure Every seasoned business owner has faced years when nothing seems to go right. Even when your books are balanced and the leadership is making good decision after good decision, larger market forces have flattened strong companies and entire economies. Economic exposure is the risk inherent in fluctuating currency markets on a broader scale. In terms of macroeconomics, there’s still ways to predict and model these dynamics; however, one of the most important ways to brace for variability in markets is to take the ox as inspiration. Oxen symbolize hard work. Whenever populations moved or tamed territory through history, oxen were present to pull carts and plows. To face wide exposure, you must be strong, independent, and supportive of the rest of your treasury team. Even when a client has thousands of pending invoices, at GPS we move forward like a stubborn ox until the client has a clean shop and fully functioning accounting practices in place. The Dragon: Mitigating Corporate FX Risk In February 2024, we ushered in the year of the dragon. An ancient symbol of China and associated with luck, the dragon also symbolizes powerful, energetic, and visionary leaders. When it comes to an overarching metaphor for corporate leadership tackling exposure risk, there’s no better image than the dragon. When you consider expanding into new markets, business leaders need a good measure of courage and luck to set up subsidiaries and deal with exposure as it arises. Another aspect of the dragon is that it’s a giver of abundance and longevity. At GPS, we provide the extra help treasury department and C Suite leaders need to grow their businesses across national boundaries and foster success far into the future. Because our individualized customer service is coupled with the leading FX rates and technology, we have long-term clients who trust us to help lead their companies forward with the spirit of the 2024 dragon. ALSO READ Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Franklin
Introducing Article Sharing on Treasury Mastermind
How to Post your own article Here is a step-by-step guide on how to post your own article: Step 1: First, ensure you are a registered member and logged in, then click on the profile icon at the top right and a drop-down menu will appear. Step 2: When the drop-down menu comes up, click on “my blog” to be taken to where you can write an article Step 3: On the article edition page, put the title of your article on the “Post Title” section Step 4: Add the content of your article to the “Post Content” section. Step 5: Add a short excerpt to your article to highlight what your content talks about (although this is optional) Step 6: Upload an image you want to be associated with your article. Step 7: Check a category you feel your content is best associated with. Step 8: Click on the tags you want linked to your article (this step is also optional). Step 9: Finally, you can submit your content when you are done. Please note: All submissions are subject to admin approval to make sure they conform to forum rules. So, there you have it. Do not miss out on the opportunity to share articles that might be useful to other treasurers.Go to the forum to share your article at any time.
Treasury Technology Trends in 2024: How APIs, AI, and RPA Change the Treasury Landscape?
This article is written by Nomentia Treasury technology trends are developing at a rapid pace and like in other industries, the names of new emerging technologies are popping up here and there. It’s only natural, though. For the last decade, we have been talking about digital transformation and Treasury has truly embraced the idea of digitalizing and automating processes. Still today, the evolution of treasury continues. If someone wasn’t convinced about digitalization five years ago, they’re now witnessing development occurring at an accelerated pace. Treasury teams are now evaluating which processes require improvement. While some companies are just starting to implement treasury management systems to improve their ways of working, others are always frontrunners in adapting exciting new technologies, and they are paving the way for others. While working with clients, we often come across treasury teams that are ready to provide us with new ideas to develop our solution further, so they could be among the first to implement something new that would benefit them but also benefit the rest of the treasury community. A while back, our clients helped us develop a rule-based fraud detection engine to catch anomalies in outgoing payments, while today, we hear from clients that some of them are developing business cases for using AI in cash flow forecasting. But before going through the trending technologies like APIs, RPA, or AI, we’ll take a look at how treasury management systems have developed over the years and where they are today. Treasury today: moving from on-premise solutions to the cloud One of the most significant developments of the last decade has been that solution providers have started to move from providing on-premise solutions to hosting everything on cloud platforms (like Microsoft Azure or AWS), offering their services as software-as-a-service. The change has been massive: it meant that solutions could be taken into use much more rapidly than before with less support from IT, the solutions were more secure and highly available, and monthly updates and major releases were available for all users once published. Cloud-based TMS solutions have enabled treasury teams to build their roadmaps differently As vendors have started to offer cloud-based treasury management software, treasury teams have more opportunities: they could plan the treasury roadmap using a best-of-breed approach. The best-of-breed approach means that it’s possible to implement solutions at one’s own pace or even take solutions from several vendors. Earlier, a company could have implemented the best TMS on the market, yet the TMS could have lacked certain functionalities that they needed. With a modular approach, it’s still common that the Treasury team implements a robust TMS, but at the same time, the team could find a solution from another vendor that would have better possibilities and functionalities and could be integrated with the TMS, ERP, and banks to ensure that the processes work seamlessly. This has been a huge step forward, as Treasury teams could start selecting the solutions that best fit their challenges and needs, instead of settling for a single solution that may not fully satisfy all their requirements. Integration, bank connectivity, and process automation are essential in treasury Integrations have also played an important role in how Treasury teams have developed their technology stack. Building integrations between different cash and treasury system solutions has become the new norm. Perhaps, still, the biggest priority is setting up the integration with the primary and secondary ERP systems, as the reliance on real-time information is even more important when multiple solutions are relying on accurate data. Bank connectivity is also a solution that treasury teams are seeking, especially when the business is starting to grow. One can manage one or two connections internally, but the moment treasury needs to handle global operations, investing in a bank connectivity solution is a must. Now, after we have gone through the basics that have been shaping the Treasury of today, it’s time to look at the technologies that could shape the Treasury in the upcoming decade. Treasury Technology Trends that are shaping the future of Treasury APIs, AI, RPA, ML, Blockchain, Big Data, Data Analytics… you have been hearing these terms all over the internet in different contexts. Consultants and analysts are pushing these topics daily as the next big thing. These are the Treasury technology trends shaping the future of treasury and we’ll take a look at how API, RPA, and AI could be shaping how you work daily in treasury and finance. APIs will change how we connect systems APIs (application programming interfaces) are a set of definitions and protocols for integrating software solutions. With the help of APIs, the products you are using can communicate with each other. Usually, developers implement APIs to ensure they offer simplicity in connection, flexibility, and thus serve as an excellent starting point for innovation – whether you aim to automate processes or access real-time information from a specific source. Perhaps one of the biggest use cases is to connect different treasury and financial software using APIs. Modern SaaS solutions usually offer built-in API connections and the faster you can connect your technology stack, the faster you will be able to automate different tasks or obtain data from various sources. Banks have been investing heavily in API development over the years and most banks offer Premium APIs for treasury and finance teams to facilitate automation between your banks and your financial systems. We recommend that you familiarize yourself with the different offerings of your banks to know what’s possible with APIs and how you could utilize them in your daily work. Robotic Process Automation (RPA) could be the answer to repetitive tasks Robotic process automation (RPA) is a technology solution that relies on using robots or “bots” to automate simple, repetitive, or rule-based business processes. The tasks are often manual, time-consuming, and error-prone. The robots are mimicking human interactions with software, systems, or applications, and they perform tasks such as data entry, data extraction, calculations, or other similar routine operations. RPA relies on pre-defined workflows, data manipulations, and solution-making decisions based…
Optimizing Liquidity Amidst Rising Interest Rates: A 2024 Outlook
This article is written by Cobase After the complexities faced in 2023, the financial landscape presents both challenges and opportunities for businesses aiming to optimize their liquidity in the face of fluctuating interest rates. Reflecting on the events of 2023, it becomes clear that understanding market trends and preparing for the future have never been more crucial. This blog post offers insights into the current economic environment and strategic recommendations for liquidity management in these dynamic times. Reflecting on 2023: Setting the Stage for 2024 The year 2023 was a rollercoaster for global economies, marked by continued recovery efforts from pandemic-related disruptions, geopolitical tensions, and varying responses from central banks worldwide. These factors contributed to an environment of uncertainty, with interest rates experiencing significant adjustments as part of broader efforts to control inflation and stimulate economic growth. 2024 Economic Outlook: The Interest Rate Conundrum Looking ahead, the consensus among financial analysts for 2024 suggests a continuation of the trend towards rising interest rates. This forecast is predicated on ongoing efforts by central banks to manage inflation without stifling economic recovery. For businesses, this means a landscape where the cost of borrowing could increase, impacting strategies for managing cash reserves and investments. Strategic Approaches to Optimizing Liquidity Navigating the Future with Informed Decisions The ability to adapt and respond to changing market conditions will be key to navigating 2024 successfully. Businesses that prioritize flexibility in their financial strategies, leverage technology for better decision-making, and stay informed about market trends will be better positioned to manage liquidity effectively in an environment of rising interest rates. Conclusion The outlook for 2024 presents a nuanced picture of challenges and opportunities for businesses focused on optimizing their liquidity. By adopting a strategic approach that includes dynamic cash management, technological investment, and a keen understanding of market trends, companies can navigate the uncertainties of rising interest rates with confidence. The journey through 2024 will require vigilance, adaptability, and informed decision-making to leverage opportunities for growth and stability in the ever-evolving financial landscape. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
10 Things You Need to Know about APIs for Treasury
This article is written by kyriba APIs for treasury continue to be one of the most talked-about technologies as finance leaders look to make their treasury and payments operations more real-time and responsive to market volatility. APIs are critical to the future of bank connectivity, yet they offer significantly more value than connecting treasury systems and ERPs to banks. In a recent webinar, Celent’s Head of Banking and Payments, Patricia Hines, and Kyriba’s Global Head of Marketing Strategy, Bob Stark, explored how APIs are transforming the ways corporate finance teams access and use data. They discussed the many benefits of API adoption, including connectivity, reporting and analysis, accelerated payments, and more. 1. On-Demand, Real-Time Connectivity APIs, or Application Programming Interfaces, are sets of protocols and tools that allow different software applications to communicate with each other. They enable different systems, including banks, ERPs, payment networks, treasury management systems, data lakes, data warehouses, and other internal and external systems, to connect and exchange information on-demand and in real-time. APIs seamlessly embed this data within various workflows across treasury and finance, enabling a complete enterprise picture of cash and liquidity. 2. Up-to-Date Reporting and Analysis Real-time data connected and unified from multiple streams means the most up-to-date information is available for reporting and analysis. APIs can feed into reporting that delivers comprehensive, instant visibility into where your cash is and what actions you need to take. By enabling seamless communication beyond ERP-bank-API connectivity, APIs offer many benefits for reporting and analysis, including: 3. AI and Data Science Because APIs unify and connect data in real-time, they provide clean, solid data and also allow organizations to access more detailed data. APIs help create a data platform, or a “single source of truth,” setting the table for the use of AI and empowering organizations to make data-driven, informed decisions. As Bob emphasized, “You don’t have an AI strategy without a data strategy, and you don’t have a data strategy in treasury without APIs.” The uniform, enterprise-wide data delivered by APIs allows organizations to leverage other capabilities for automation, predictability and analytics. 4. Automatic Translation of File Formats With many different types of formats for bank reporting and payments, format transformation can be challenging, time-consuming and costly. Many banks also have their own file formats and their own communications protocols, presenting challenges for technical on-boarding. Additionally, banks may limit file format options (e.g., BAI or EDI), and the various channels for interaction (host-to-host, SWIFT, domestic networks) add complexity. Further complicating matters is the SWIFT MT to MX migration and the adoption of ISO 20022. By automatically converting formats for seamless communication between disparate systems, APIs help solve the challenge of translating the multiple bank reporting and payment formats used to exchange payment instructions and reporting information. Source: Celent (Copyright © 2023, Celent, part of Oliver Wyman) 5. Accelerated, Secure Payments API technology is revamping how companies manage their payment journey by enabling machine-speed transactions, efficiently and securely. Beyond delivering automated format transformation and streamlined connectivity, APIs enable automatic checks of payments before they are sent to banks. APIs facilitate standardized payment controls, such as digital signatures, additional levels of approval, single sign on (SSO) and audit trails. Additionally, APIs improve payment governance with real-time fraud detection, sanctions list screening, bank account verification and digital policy compliance. Any suspicious activity or detail within a payment instruction means the payment is instantly quarantined, ensuring security and comfort that the right payments are being transmitted to banks. 6. Streamlined Corporate Processes APIs enable improved business outcomes. They can streamline processes, delivery, and intelligence for cash and liquidity management, investing, borrowing, foreign exchange, accounting, supply chain finance and payments. APIs provide the opportunity to re-explore existing processes, encouraging corporates to ask: What can we do with richer information? With faster information? How can we better present information for ourselves and our colleagues? What do we want to do differently and better than we are doing today? 7. Easy to Adopt Instead of creating custom integrations for each bank and payment provider, developers can leverage existing APIs, saving time and resources. API development and implementation is now easier than ever with API marketplaces where the hard work has already been done. Many banks and technology partners offer API marketplaces with pre-built, pre-developed and pre-tested APIs. Organizations can leverage these pre-built solutions to decrease implementation time from months to days. For example, with Kyriba’s API gateway, clients can seamlessly connect via Kyriba to over 1,000 global banks, supported by an extensive format library of 50,000 pre-developed and pre-tested payment scenarios. 8. Avoid the Rip-and-Replace Approach APIs augment, complement and improve–but do not necessarily replace–existing systems. Choosing API solutions doesn’t require a complete overhaul of existing systems. Businesses can integrate API functionalities like real-time reporting and instant payments alongside their current ERP systems without disrupting established workflows. The goal is not a massive rip-and-replace project, but rather the opportunity to enhance existing treasury operations with more on-demand capabilities, facilitating real-time decision-making. 9. Flexibility to View Real-Time Data Whenever, Wherever APIs offer the flexibility to access real-time data from treasury systems and other sources. Combined data from different streams can be fed instantly for viewing in your treasury management system, your ERP, your desktop or your phone. You can consume data where you want and how you want, on-demand and in real-time. 10. How to Get Started with APIs Taking the first step toward adopting APIs involves engaging with your banking partners. While it might seem like a daunting discussion, approaching it as a conversation about connectivity–and exploring the possibilities APIs can deliver beyond ERP-bank-API connectivity–can be insightful. Many forward-thinking banks treat APIs as a product, offering support and sales assistance. Understanding the potential outcomes and benefits before entering the conversation is crucial: APIs offer the opportunity to accelerate and enhance your business processes. Collaborating with your banking partners, ensuring alignment with your technology stack and envisioning the improvements you seek will help you successfully navigate your API journey. Also Read Join our…