With solutions such as FiREapps, the role of Treasury within the organization can be more advisory and strategic.
A leading global provider of electronic payment solutions with operations located in the US, Brazil, China, Hungary, Mexico and the United Kingdom with reported revenues of US$ 260 million in 2002, operating income of USD 1.6 million experienced a material foreign exchange loss of USD 6.0 million and could not explain why.
The company had been impacted by earnings volatility and loss of operating income due to currency fluctuations. Foreign exchange was not a core competency of the company and they needed to find a solution that established best practices, reduced volatility and helped them identify foreign exchange exposures accurately and in a timely manner. Some of the challenges along the way were:
Lack of knowledge: The Treasury Department wanted to improve compliance but was unsure of best practices.
Over Hedged: The client approached a local bank, purchased derivatives products and put several processes and systems into place yet they were still unable to match exposures and hedges to reduce market risk.
Unnecessary Cost: Because of the lack of domain expertise related to hedging products and an incomplete understanding of the root causes of its currency related volatility the client purchased a substantial quantity of unnecessary hedging products.
Complex Intercompany Currency Flows: The client’s processes for settling and clearing of intercompany accounts, analyzing and managing associated currency exposures was time consuming and highly inaccurate.
How We Helped:
Best Practices: FiREapps worked with the clients Treasury team to establish best practices through the use of FiREapps disciplined and centralized exposure management process framework and dramatically.
Measure, Manage, Monitor: With the FiREapps solution the client had the ability to measure, manage, and monitor their foreign exchange exposure. FiREapps delivered on demand exposure analytics and optimized exposure management recommendations in a fraction of the time it use to take.
Operational Efficiency: The FiREapps solution helped the client identify world-wide foreign exchange exposures on a weekly basis and recommended policy compliant actions.
Optimized Internal Banking for Intercompany Settlement and Exposure Management: With the help of our professional services team and the FiREapps exposure management platform, the clients Treasury team was able to understands its foreign exchange exposure in detail and take advantage of natural hedges and intercompany settlements to reduce exposures in a timely and cost effective fashion.
Since the clients Treasury team began using the FiREapps solution it has saved more than US$ 7 million over a 3-year period. The company has significantly reduced foreign exchange volatility and the number as well as the size of transactions. On the operations side, the adaption of the FiREapps solution has given the company a major competitive advantage as it now has continuous understanding of how to mitigate the company’s foreign exchange exposures through timely and accurate reporting.