Interconnected Markets and Cash Flow Hedging Agility
This article is written by GPS Capital Markets Each morning, as I walk through the GPS headquarters in Salt Lake City, breaking news plays on flat screens lining the area where account executives and other members of the GPS team work. Whether it’s a natural disaster, international conflict, or trade agreement, being in an FX company will make you believe that a butterfly flapping its wings in South America could really cause a storm in the northern hemisphere. Breaking news flashing across screens can start a domino effect, with account executives checking reports, looking up currency movements, or getting on the phone to talk to cash flow hedging and other clients who might be impacted by events. When I was a college and graduate student studying cultural anthropology, every spring I applied for grants that would help me do fieldwork abroad. With a longtime love of cross-cultural exchange and the growing possibilities of big data, I started focusing on what’s called Network and Complex Systems Theory, which uses mass data gathering and visualization techniques to study underlying patterns in different systems, which could be economic, as we’re focused on at GPS; ecological; social; and more. Besides studying interconnected data points, just traveling between my home in Utah and Europe provided me with a fascination for the way trends spread and impact events in (sometimes) predictable ways. Today, it’s exciting to work in a field where I see the contemporary world’s interconnected nature daily—like having a finger on the pulse of a complex network of investing and divesting, growth and absorption. Seeing the proactivity and how detail-oriented the multi-person teams supporting our clients are also inspires me. Especially during the past year, unforeseen conflicts and shifting trade agreements (see All Eyes on the Peso by Michael Buck) create ripples and test GPS’ ability to predict and respond on the dot when market disruptions occur. While nobody has a crystal ball, cash flow hedging can anticipate and obviate losses. Examples of how businesses increase agility with cash flow hedging For companies of any size, foreign exchange exposure can increase operating costs, cause cash flow and balance sheet discrepancies, or increase anxiety about the value of assets and liabilities. To better understand how GPS teams assess cash flow exposure and provide agile solutions as events occur, the following provides specific examples of scenarios that required quick pivots of cash flows due to war, subsidiary closure, and more. Many examples show how GPS clients utilize hedging advice when unforeseen events take place and can illustrate the benefits of person-to-person collaboration that takes place in cash flow hedging programs. How cash flow hedging works When companies set up cash flow hedging processes, forecasting cash flows starts 12 months in advance. This process allows business to lock in better rates, providing certainty about the actual cost of expenses and liabilities. When a business implements a cash flow hedge, the use of a hedging instrument (a derivative) locks in the amount of a future cash inflow or outflow before market volatility hits. Cash flow hedge accounting then connects the income statement of a hedging instrument and a hedged transaction, offsetting the predicted changes in cash flow. Matching cash flows to offset losses due to currency market volatility, the change in the value of the derivative designated as a cash flow hedge will be reported as a component of other comprehensive income (OCI) and then reclassified into earnings in the timeframe when a forecasted sale or debt happens. Different types of cash flow hedging strategies There are three main types of strategies to offset forecasted cash flow issues: static, rolling, and layered. Common cash flow hedging strategies: The benefits of dedicated customer service while hedging cash flows The above examples show that conducting international business comes with multiple opportunities and challenges that many treasury departments struggle to manage if they are relying on individual banks. Yes, GPS beats bank rates and saves clients millions, but more importantly, advisors provide 24/7 attention to each client, getting to know their business needs and anxieties inside-out. Working in tandem with real experts in the FX space, clients get to engage in granular business development conversations on an ad hoc basis. If you find out that a supplier or payee in a subsidiary goes out of business, GPS will be there to give recommendations for finding new contracts, shifting resources to other markets, or simply implementing different hedging strategies. If a war or international trade relationship shifts, GPS uses its large bank of data and its experts’ decades of experience to create plans to offset losses or win new contracts across unaffected markets. 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. 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Franklin
Are You Developing Skills That Won’t Be Automated?
The article “Are You Developing Skills That Won’t Be Automated?” from the Harvard Business Review explores the future of work and the increasing impact of automation on various job roles. According to recent studies, a significant portion of U.S. jobs are at risk of being automated, particularly those involving repetitive and routine tasks, such as truck driving and warehouse stocking. Recommended Reading The article argues that rather than focusing solely on which jobs will be automated, it is crucial to identify which aspects of jobs will remain the domain of humans. Key areas where human skills are irreplaceable include emotional intelligence and contextual understanding. For instance, while machine learning can diagnose illnesses more effectively than humans, the emotional support a physician provides to a patient’s family remains uniquely human. Similarly, bartenders engage in social interactions that go beyond merely mixing drinks, showcasing the importance of human connection and empathy. Emotion and context are highlighted as two critical components that machines struggle to replicate. Emotion influences human communication, prioritization, and decision-making processes. Context, which is dynamic and ever-changing, allows humans to adapt to new information and circumstances in ways that machines cannot. These abilities contribute to skills such as critical thinking, creative problem-solving, effective communication, adaptive learning, and sound judgment—skills that are highly valued by employers across industries. The article emphasizes the need for educational systems to focus on developing these non-automatable skills. This includes fostering abilities like clear communication, complex problem-solving, and adaptive learning, which are difficult for machines to emulate and are essential for maintaining a competitive edge in the workforce. In conclusion, while automation poses a threat to many jobs, developing skills that harness human emotional intelligence and contextual adaptability can ensure continued relevance and success in an increasingly automated world. We thought it would be valuable to get perspectives from Treasury professionals Alexander Ilkun and Jessica Oku, who are also Treasury Mastermind Board members. Q: What tasks and skills does the treasurer need to avoid his tasks being automated away. That is, what makes a human treasurer unique compared to a robot treasurer. Or will we eventually only need bots in treasury? Jessica Oku, Director of Fund Development at Women’s Health Coalition Canada, Comments To stay relevant as a treasury professional, you will have to develop skills that cannot be automated like interpersonal skills, critical thinking and adaptability. These will help you solve problems creatively and effectively manage unexpected challenges. These unexpected challenges are what might limit AI’s capabilities as it is basically pre-programmed to handle known issues or tasks. In the same vein, stakeholders management and collaboration cannot be automated. Hence, it is important for treasury professionals to continue developing skills that facilitates collaboration and emotional intelligence (EI) is an important element here. Organizations serve different types of stakeholders (internal & external), who have interests that need to be met for its continual survival. One context I would give can be during a financial crisis, such as a sudden market downturn that causes significant volatility, a treasury professional must quickly analyze the impact on the organization’s cash flow, investment portfolio, and debt obligations. By applying critical thinking, you can develop strategic responses, such as reallocating resources, renegotiating terms with creditors, or adjusting investment strategies. Adaptability allows you to implement these changes swiftly and effectively to avoid negative impact on your organization. Alexander Ilkun, Founder of ClearBox SIA, Comments There was an interesting research that has shown that chatbots having conversations with patients were actually seen as being more compassionate than human doctors. In the healthcare industry where human doctors are extremely overworked and need to treat as many patients as possible that is understandable. However, the future isn’t replacing human doctors with bots based on this evidence. I believe the future is to embed AI in the working routine of doctors, so that AI can help them quickly interpret the data that they’re seeing, leaving time and emotional resources for having a conversation with the patient. Even if the bot is able to have a compassionate conversation, it is important how it will be perceived by the individual patient. Human beings are social creatures and a conversation with a robot, no matter how compassionate, will be seen as a fake and will not fill the social need. I believe the same can be related to Treasury space as well as Treasury teams are typically lean and are asked to perform more tasks with less or the same quantity of resources. Emotional intelligence is critically important for Treasury functions. We often find ourselves in a project management position, since were the last ones moving cash. Be it M&A, cash repatriation, dividends to external shareholders or issuing and servicing debt, the focus is very often on the last step – cash moving which is strictly in the Treasury domain. However, so many things need to happen beforehand that typically takes place behind the scenes. I found that it is typically the Treasury team that is bringing all of the functions together to achieve the common end result. With this kind of setup it is crucial that Treasury teams not only possess the technical skills to do their job but also the emotional intelligence skills – communication skills, building buy-in, conflict resolution, achievement orientation, understanding your own emotions and those of others’. All of these are emotional intelligence skills that define how successful the individual and the team is going to be. Robots will not replace human interaction and these are the skills we need to continuously work on.It would be a good place to draw a parallel to the EuroFinance topic we discussed with Patrick in Barcelona last year as it touched on this specific area. There is a lot of debate about creativity of machines in that they can’t create anything new. While it is technically true, there is a saying that “everything new is very well forgotten old.” I believe it is underestimated to what extent machines are able to come up with ‘new’ things…
Excel Shortcuts for Finance Pros
This article is written by: Automation Boutique In treasury and finance, where every second counts, mastering Excel can be a superpower. We’ve all felt the pressure of looming deadlines and the endless sea of data analysis, financial modeling, and report generation. It’s in these moments that we find ourselves thinking, “There’s got to be a faster way.” And there is. Excel shortcuts are the fastest way to transform tedious tasks into swift actions. Today, let’s explore some of these shortcuts, all gleaned from our cleverly designed mouse mat that does more than just support your wrist. Editing with Speed and Precision Formatting Made Easy Navigate Like a Pro Audit with Confidence Insert/Delete Without a Hitch Formulas and Functions: The Heart of Excel For those of us navigating the complexities of finance and treasury, these shortcuts can boost productivity and efficiency. Integrating these shortcuts into your daily routine can transform your Excel tasks, shifting focus from manual data entry to strategic analysis and decision-making. Now, take a moment and think: Which shortcut is going to be your new favorite? 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.
CNBC article discusses the growing concerns about the United States
The CNBC article discusses the growing concerns about the United States’ rising debt and budget deficits and their potential impacts on the economy and financial markets. For more details, you can read the full article on CNBC’s website [HERE] Recommended Reading Here’s a detailed summary to help non-financial readers understand the key points: Rising Debt and Deficits The U.S. federal budget deficit is increasing significantly. In 2023, it was projected to reach $1.7 trillion, up from $1.375 trillion in 2022. This rise in the deficit means the government needs to issue more Treasury bonds to finance its spending. Investor Demand and Treasury Yields A primary concern is whether there will be sufficient investor demand for the growing supply of Treasury bonds. If demand falters, the government might have to offer higher yields (interest rates) to attract buyers. Although bond yields have been rising, this is more closely linked to Federal Reserve policies aimed at controlling inflation than the sheer volume of new debt issuance. Political Landscape and Fiscal Policy The political environment in Washington plays a significant role in deficit management. Major changes to fiscal policy often occur when one party controls the presidency, the House, and the Senate. For example, a fully Republican government might focus on extending tax cuts, while a Democratic government might increase spending. A divided government tends to struggle with major fiscal legislation, which could unintentionally result in a smaller deficit due to built-in fiscal constraints like expiring tax cuts and spending caps. Long-Term Projections and Risks Long-term projections indicate that U.S. debt is set to reach unprecedented levels. By 2033, the debt held by the public is expected to climb to 115% of GDP, surpassing previous records. Factors contributing to this increase include an aging population and rising costs for Social Security and Medicare. If current trends continue without significant policy changes, the debt could grow to 180% of GDP by 2053 Interest Payments and Economic Impact The rising debt levels mean higher interest payments, which could consume a larger portion of federal revenue. Interest costs are projected to grow significantly, potentially exceeding $1 trillion annually by 2029, which would outpace defense spending. This shift could limit the government’s ability to fund other priorities and respond to future crises. Geopolitical and Market Implications High debt levels also pose geopolitical risks. A significant portion of U.S. debt is held by foreign entities, including countries like China. This external ownership can create vulnerabilities in financial markets and reduce the U.S.’s economic sovereignty. Moreover, a higher national debt can weaken the country’s global standing and make it more susceptible to economic and geopolitical pressures from other nations. Conclusion Overall, the article highlights the critical need for fiscal discipline and strategic policy-making to manage the growing debt and deficits. Without significant changes, the U.S. economy could face higher borrowing costs, reduced fiscal flexibility, and increased vulnerability to both domestic and international economic shifts. We thought it would be valuable to get perspectives from Treasury professional Benjamin Defays, who are also Treasury Mastermind Board member. Q: We would like to hear your opinion about the recent CNBC items issuing concerns about the rising debt of the US, surpassing the 100% GDP mark and being a big burden on the cash outflow (interest). We are seeing pressure on US Treasury yields lately, meaning the markets perceive them as higher risk or a diversification into corporate bonds. From the EU point of view, what are your thoughts? Benjamin Defays, Senior Associate Vice President at Revantage, Comments The recent surge in U.S. debt, now exceeding 120% of GDP, is a significant challenge that extends beyond American borders, impacting global financial markets and posing particular considerations for corporate treasury professionals in the EU. Another example illustrating the increasingly complex landscape treasurers must navigate through is marked this time by heightened volatility in U.S. Treasury yields and potential shifts in investment risk profiles. The substantial increase in U.S. federal debt is generating concerns about higher default risks and calls for a reassessment of investment strategies, particularly concerning short-term investments and the use of money market funds. Once again, the diversification of short-term investments into high-quality, liquid assets is critical. Money market funds, traditionally viewed as safe, must be scrutinized for their exposure to U.S. debt and associated risks. Given the rising yields and potential volatility in that market, it is prudent to consider increasing allocations to non-US denominated assets or other non-dollar denominated securities. This strategy can help mitigate currency and interest rate risks, ensuring more stability in the investment portfolio. On one hand, active and diverse liquidity management strategies will be essential in this environment. Treasurers should consider laddering maturities to balance liquidity needs with yield optimization. Maintaining a mix of short-term investments with varying maturity dates can provide flexibility and protect against sudden market shifts. On the other hand, keeping a close watch on central bank policies is even more vital. The ECB and U.S. Federal Reserve’s upcoming decisions will be influenced by this unstable situation, which will in turn affect interest rates and liquidity conditions. Understanding these policies will aid in making informed decisions about investment, currency exposure, and interest rate hedging. Furthermore, treasurers should stay informed about potential regulatory changes and fiscal policies that could affect global financial markets. The ongoing discussions about tax policies, government spending, and social security reforms in the U.S. could lead to market movements. Indeed, potential changes in U.S. corporate tax rates or new spending programs could influence bond yields and the overall risk environment. It seems that the work of the corporate treasurer is not yet set to go into a comfort zone (and if you ask me, on a personal note, this is great news!). The elevated U.S. debt levels and the resultant market dynamics present a complex challenge for corporate treasurers. By being proactive, diversifying investments, actively managing cash, and staying informed about central bank policies and regulatory changes, treasurers can navigate this uncertain landscape. Adapting to these changes with a proactive…
The Threat of Deepfake Frauds in Payment
This article is written by Kyriba Imagine this: your CEO’s voice or your CFO’s face—and a request for funds. Something in your gut is telling you that this situation feels ‘off’ but what can you do? It’s the CEO or CFO of the company after all. This is the reality of deepfake fraud, a clever ruse that is not only making headlines but also blurring the lines between truth and fiction with chilling precision. Every transaction and every interaction is a potential battleground, where the slightest misstep could lead to catastrophic losses. Misinformation and disinformation are the number one concern and near-term risk according to the World Economic Forum’s 2024 Global Risks Report for government leaders, executives, chief information security officers, and others who want to mitigate deepfake fraud. The Evolution of BEC Scams Business email compromise scams exploit the most vulnerable element in tools, technology, and processes: us. Leveraging BEC scams has remained one of the most profitable forms of cybercrime by exploiting weaknesses in human emotions and decision-making habits. In fact, despite increasing awareness of these types of scams amongst the general public, the FBI reported 21,489 BEC complaints, with losses amounting to $2.9 billion in 2023 alone. The integration of deepfake technology into these scams marks a significant step in their increasing sophistication and highlights the need for heightened vigilance and advanced cybersecurity measures. As criminals continue to use advanced AI to create more convincing frauds, the challenge for businesses becomes how to play defense against a technological threat and a psychological one. The Rising Threat of Deepfake Fraud A subset of “synthetic media” or “synthetic content,” deepfakes are defined as a type of artificial intelligence (AI) that—as the name suggests—are used to create bogus content, such as images, audio, and video. The rise of deep-fake fraud casts a shadow of doubt over every transaction. Deepfake software has become a powerful and dangerous tool in the hands of fraudsters. The technology can create the illusion of a legitimate transaction. You might think you are hearing from the CEO, the CFO, or the attorney related to a merger, requesting a legitimate payment. And by the time a company realizes it has been duped, it’s often too late. In early 2020, deep-fake voice technology was famously used in a $35 million bank heist in Hong Kong. A bank manager received a call and several emails from what appeared to be a company director he had spoken with before. The director claimed that his company was making an acquisition soon and needed a $35 million transfer to complete the process. The bank manager, recognizing the man’s voice and believing everything to be legitimate, complied and sent the money. Of course, the person who called the bank manager and sent the emails was not who they claimed to be, and the money was stolen. The theft has implications for companies of all sizes, as it represents the latest step on the evolutionary scale of a familiar scam that has duped well-meaning financial professionals into transferring millions into the wrong hands. The Deception Deepens with Video & Audio Deepfake technology uses artificial intelligence to combine still images of one person with video footage of another. In a relatively short amount of time, the technology has improved to the point where very few photos—and in some cases, just one—are needed to create a convincing video deepfake. Similarly, Deepfake audio, or “deep voice” technology is another nefarious innovation. Much like with video, the software may only need a 30-second or less snippet of audio to create a flawless deepfake, according to Rupal Hollenbeck, president at Check Point Software. In a case reminiscent of the Hong Kong heist, fraudsters created an elaborate and sophisticated scheme, posing as company executives during a virtual conference call. The result? A financial worker, despite initial suspicions, was persuaded into transferring $25 million into the fraudsters’ pockets. The Office of the CFO is the Last Line of Defense Against Deepfakes The consequences of this type of fraud is not limited to financial losses but also includes potential damage to an organization’s reputation and stakeholder trust. In response to this growing threat, it is imperative that treasury professionals operate within a culture of skepticism and integrate advanced security measures into their standard operating procedures. These new, sophisticated technologies require sophisticated solutions that combine cutting-edge technology with human expertise to detect anomalies. Five Steps to Avoid a Deepfake-out The following tips can help treasury and finance professionals identify audio and visual deepfakes. Ultimately, the best way to avoid these deep-fake scams is to follow prevention best practices and apply a critical eye. While it isn’t easy to be hyperaware of the threats around us, that is exactly what we need to be in this current environment. “It used to be that seeing was believing,” said Hollenbeck, “but not so much anymore.” Deepfakes are the latest in a long line of scams. The best way to avoid falling victim: slow down. According to Blackcloak CEO, Chris Pierson, “slowing down almost always yields a definitive answer.” Also Read 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.
REAL-TIME RECONCILIATIONS: THE CORNERSTONE OF FINANCIAL GROWTH AND SECURITY
This article was written by HedgeFlows In the often labyrinthine world of finance and accounting, real-time reconciliations may seem like another industry buzzword. Clumsily thrown around by those keen on the latest bells and whistles for their balance sheets. However, beneath the jargon lies an indispensable foundation for organisations aspiring to safe, agile, and robust financial operations. It’s more than technological fashion. It’s about securing a future for your business that is as dynamic as it is secure. THE BLUEPRINT FOR SAFER GROWTH Picture the mile marker in a marathon race—your reconciliations are exactly that in the financial journey of your business. They mark the progress with precision, and when every second counts, staying updated is not a luxury; it’s a necessity. Real-time reconciliations hold the key to a financially agile enterprise. This is due to an increasing global market and the advent of digital transactions. For accountants and finance managers, the need for precision is non-negotiable. Traditional methods, like manual data entry or delayed bank feeds, no longer keep pace with the relentless surge of transactions across the world. Delayed reconciliations are not just a bottleneck for daily operations. They can lead to costly errors and oversights that reverberate across the fiscal calendar. Timely reconciliation means better risk management, more informed decision-making, and, crucially, can unlock hidden capital within your operations. THE RISKS OF A RECONCILIATION DELAY The risk posed by outdated reconciliation processes is multifaceted and unforgiving. Financial discrepancies, whether in your sales pipeline or supply chain, can have a lasting impact on your standing in the market. A one-time error can lead to prolonged fallout in terms of client trust and investor confidence, which are currencies more valuable than any monetary capitals. Furthermore, the delay in recognising these discrepancies can lead to erroneous financial statements and misdirected funds, often with expensive trickle-down effects. It’s akin to trying to navigate a dense forest with an outdated map—not impossible, but certainly unwise, and downright costly in terms of efficiency and resources. SEIZING THE MOMENT: REAL-TIME APIS AND AUTOMATION The guard changes forever in the world of finance, and technology has heralded a new dawn for reconciliation processes. APIs (Application Programming Interfaces) that enable two-way communication between your financial systems and banking/merchant transaction feeds are empowering businesses to reconcile in real time. Automation is streamlining the once arduous task of matching volumes of transactions with unprecedented speed and accuracy. Imagine your banking data and your accounting ledger dancing in sync, providing a performance that is not only prompt but pristine. REAL-TIME RECONCILIATION CASE STUDIES Case studies are powerful exemplars of the transformative power of real-time reconciliations. Take a look at a travel company client of HedgeFlows, which saw a 60% reduction in errors and an 80% saving in resource hours by switching from manual to live reconciliations. On the other hand, a logistics company, after automating their reconciliation processes, noticed a marked increase in their working capital efficiency and a surge in their liquidity ratios, all due to the transparency and cash visibility in multiple currencies that real-time reconciliation affords. The stories are compelling—real-time reconciliations are not just a convenience; they’re the lifeline to a financially resilient business model. EMBRACING THE CHANGE For those pioneering the shift towards real-time reconciliations, the results are not just gratifying but can be paradigm-shifting. It’s about harnessing every transaction, every cash flow, as an opportunity to bolster the financial integrity of your enterprise. Organisations must no longer treat recon activities as just another back-office chore but as a strategic player in their growth trajectory. The takeaway is clear. In today’s dynamic economic landscape, being diligent and being delayed are as different as success and obscurity. Modern accounting technologies and systems exist not only to automate but also to amplify the competitive edge that real-time financial insights provide. TAKE THE FIRST STEP Real-time reconciliations are not speculative foundations for the future of finance. They’re a current-day imperative for a safe and sustainable financial future. The question is not if you can afford real-time reconciliations. But whether you can afford not to have them as your business grows. THE ROAD AHEAD The journey towards real-time reconciliation might seem daunting. But it’s a path paved with reductions in financial risks. Efficiencies that translate to the bottom line, and a compass holstered for strategic decision-making. For accountants and finance managers who seek to drive value and elevate their businesses, the time for real-time reconciliations is now. 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.