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Insight to All Things Currency and Treasury Management

Last week gtnews published a great article by Howard Wardlow, Director of Finance and Treasury at Hubbell. Titled “Case Study: The Management of Hubbell Incorporated’s Global FX Exposure” the article articulates the challenges that Hubbell faced as it rapidly expanded into international markets, and the solution it found in FiREapps.

The challenges

  • Ÿ  International expansion – In just a few years, international business as a percentage of Hubbell’s consolidated business volume grew from single digits to 20 percent
  • Ÿ  Global exposures – Hubbell’s largest exposures were in some of the world’s most volatile trading currencies, including the currencies of Australia, Brazil, Canada, China, the eurozone (primarily through commercial exposure to Italy), Mexico, Switzerland, and the UK
  • Ÿ  Technical complexities – Exchanging critical financial information with a single instance of SAP and other legacy accounting systems

As a result of the international expansion and increased global currency exposure, and the technical complexities that made managing those exposures very difficult, Hubbell’s consolidated corporate profit and loss (P&L) statement reported, on average, $2 million of FX volatility.

The solution

After determining that an outside solution would be necessary, and then undergoing a rigorous selection process, Hubbell selected FiREapps FX OnRamp, designed specifically for treasury organizations seeking to establish an institutionalized FX risk management program for the first time.

FX OnRamp “combines a pragmatic and proven three-step methodology with cloud-based applications that enable treasury and finance teams to easily harmonize and validate disparate GL data from their underlying systems of record so they can effectively analyze their complete portfolio of exposures on demand,” writes Wardlow.

In addition, “as a Software-as-a-Service (SaaS) application, FiREapps does not require traditional software implementation and integration projects; instead they provide enrolment services to help their clients get up and running quickly without the need for hardware or IT development.”

The results

  • Ÿ  Identification of FX exposures on demand, eliminating many sources of delay and human error from the data gathering process
  • Ÿ  Institutionalized data integrity processes and, as a result, increased user confidence in making FX exposure management decisions
  • Ÿ  Significantly enhanced FX risk management and overall financial operational excellence
  • Ÿ  Establishment of a benchmark for FX risk, based on FiREapps’ proprietary Value at Risk (VaR) tools
  • Ÿ  Identification of new ways to reduce or eliminate exposure and risk organically
  • Ÿ  Identification and implementation of the optimum hedging strategies that comply with commercial requirements and with treasury risk management policy, with the help of FiREapps’ patented CoRE analytics

Wardlow closed the gtnews article with this: “I would recommend that corporations who are wrestling with the complexities of FX exposure management consider what we have managed to achieve at Hubbell, and see if such an approach would add value to their treasury and finance operations.”

 

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