How We Can Help
The Problem
Our FX consultants can advise on FX issues, needs and objectives, including:
- Foreign suppliers and customers - expenses and sales/revenue in foreign currencies
- Timing of FX conversions and dealing driven primarily by transactions/projects, as needed, with minimal predictability or flexibility to enable FX planning
- Cash flow fluctuations arising from FX rate volatility
- Maximum pricing (and revenue) that is not diminished by downward FX rate variability
- Bottom line profitability uncertainty due to FX rate variability
The Solution
Our FX advisors can help to explain and manage FX risk and costs, including:
- Transactions
- Pricing
- Bank FX Rate/Fee Reduction
- Objective market researched FX transaction guidance
- Optimal rates and timing for FX transactions/conversions
- Market research based negotiations with client's banks (to lower retail spreads charged by banks)
- Locking in FX rates to bring stability and certainty for budgeting and forecasting purposes and insulate cash flow and profitability from FX volatility
- Rates can be locked in at levels based on the budgeted target rates of clients, or based on objective market analysis
- Strategy
- Customized hedging strategies/levels based on a detailed understanding of the industry, market, cost and sales/revenue variables of clients
- Customized Market Research, Analysis, Commentary and Forecasting
- Strategically and objectively timed use of spot transactions, options and forwards
- Rolling hedge program to neutralize the impact of FX rate volatility on cash flow
- Infrastructure/Processes
- Negotiate customized forward rate relationships with client's banks
- Treasury dept./process audits to assess FX weaknesses and development of corresponding FX infrastructure/process solutions
- Example - centralized treasury/FX infrastructure/processes for multinationals to maximize FX economies of scales for optimal efficiencies and pricing
Get the Specialized FX Expertise you Need, when you Need it
FXA's experienced and specialized consultants can be more cost-effective than generalist employees.
Our FX consultants possess an intimate understanding of complex FX issues, concepts and hedging/risk management strategies that can only be acquired through years of experience working in banks, on the sell side - not working in a treasury department. Furthermore, our FX experts are constantly scanning the industry landscape to stay on top of cutting-edge FX concepts, technology, issues and trends; they can apply this ever-evolving expertise to meet your FX needs.
For example, one "vanilla" hedge of $10 million can cost $100,000-$500,000; a more sophisticated (or "inappropriate") hedge can cost several times that amount. When the stakes are this high, engaging our FX experts for your hedges is more effective than hoping your in-house resources are equally up-to-date and qualified for the task.
Bring in our FX experts only as you need them - a more cost effective option compared to full-time employees with a general background and insular perspective.
Manage FX Risk and Costs
If you have international suppliers/customers, we can help to ensure that you don't pay too much when converting/wiring foreign currencies. Our team consists of former bank FX salespeople who can research professional-grade FX data and negotiate the best rates for you. We can also recommend ways to lock in FX rates and proactively minimize FX risk, for increased budgeting/forecasting certainty
With several years of experience on the bank sales side, our foreign exchange consultants know the "tricks" banks use to enhance their spreads - to the detriment of their end clients. We can use this knowledge, along with professional-grade FX rate data, to advise clients on FX dealings with their banks, and minimize FX transactional costs - and maximize margins.
Get the Answers you Need with Customized, Professional FX Research and Analysis
FXA's team of experienced FX consultants has the perspective and resources to provide professional, customized FX research and analysis. Get expert answers to FX issues or regular market updates on your particular currency targets - both based on professional-grade FX data and insight.
Forwards vs. Options: Lock in FX Rates...and Budgeting/Forecasting Certainty
A common issue is when to lock in rates via forwards vs. zero cost participatory option hedges. For example, if a client knows today that he will need to send 10 million euro in six months, he can either lock in a specific rate today with a forward contract, at let's say 1.4600. So in six months, whether the EUR/USD is at 1.5600 or 1.3600, the client will be obligated to purchase his EUR at 1.4600. Alternatively, the client can lock in a specific range (let's say 1.4800 to 1.4400) for the same six month by putting on a zero cost option hedge. If in six months, the EUR/USD is above 1.4800, the client will be protected at 1.4800. In other words, the client's worst case rate is 1.4800. However, if the EUR/USD weakens toward or beyond the 1.4400 level, the client will be able to buy his euro at the more favorable 1.4400 level. In other words, the client's best case rate will be 1.4400.
Thus, the question becomes whether the client should lock in the specific rate, or lock in the range. Our philosophy is to assess internally; in other words, is there a specific exchange rate this company must satisfy as per their board or a rate that must be met to reach profitability.
In this example, if the rate is at the 1.4600 level and the client cannot afford a worse rate, then he should lock in a specific rate. However, if the client's budgeted rate is 1.4800, then he may be inclined to lock in the range, because he can afford the 1.4800 rate using the range. The next issue is the probability of whether the EUR/USD will strengthen or weaken. With the USD trending weaker for the past few quarters, the probability of a higher EUR/USD, in our opinion, appears to be in the 70-80% range, which would support the decision to lock in a lower EUR/USD rate. A higher probability of a lower EUR/USD rate, on the other hand, would support a decision to lock in the range of 1.44-1.4800.
Our forex consultants can add value by providing customized, professional FX risk management in handling these issues.
