A white paper by FireApps looks at how companies can improve their FX management, including the underlying data necessary and six questions to assess if you need an FX addition to your TMS.

The paper notes that 44 per cent of global treasury professionals use a treasury management system (TMS) as their primary technology to gain visibility into cash and risk across the organisation. While not all TMS systems need additional FX capabilities, some may benefit, so how should corporate treasurers go about assessing their need? FireApps – a provider of analytics solutions for cash flow and balance sheet – argues that organisations can make better decisions and get access to better data if they use currency analytics software as part of their TMS.

Six questions about your TMS

It also suggests that corporate treasurers should ask themselves whether their TMS does the following:

1. support summary level transaction currency balance collection and consolidation to a single view?
2. initiate exposure aggregation, consolidation and netting at a currency pair level?
3. generate exposure calculation and analysis by currency pair at a company, entity, account group, account level and/or any customized reporting dimensions?
4. eliminate exposures organically to reduce currency risk across the entire organization?
5. facilitate currency and rate impact analysis, Value at Risk (VaR), and balance and exposure trend reporting?
6. enable an end-to-end workflow with transaction currency data collection, review and approval with full audit and compliance trail?

ACT data

The paper emphasises that the data used in FX analytics should be representative of the entire corporate enterprise. It says the data must properly reflect accounting transactions and remeasurement activities, and be available in a timely manner: “If the data collected is not accurate, complete and timely (ACT), the designation, measurement and presentation of the exposures and resulting derivatives from the TMS may be incorrect as well.”

Reducing FX risk

The paper – Currency Analytics: A Necessary Tool to Enhance TMS-Anchored FX Risk Management – also outlines the following advice for corporates to reduce FX risk:

• identify and quantify total currency risk portfolio, including visibility into contributing accounts and currency pairs;
• provide an intuitive overview of potential risk reduction opportunities while operating in accordance with a company’s risk tolerance;
• differentiate between the cost and benefit of hedging using interest rate differentials;
• improve corporate communication and reporting.

---

CTMfile take: This report makes the case for using a specialist FX analytics solution in addition to a treasury management system. While there may be benefits to specialist software, corporate treasurers need to think carefully about what they can do with what they already have.