Risk Management

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Asia’s FX Landscape – Managing Complexity To drive international business, treasurers are now expected to understand and manage complex changes, many of which are being driven at the onshore regulatory level.

Asia’s FX Landscape – Managing Complexity

An end-to-end approach for FX payments and risk management

by Sunil Bhatia, Head of Clearing and FX Products Asia Pacific, Global Transaction Services, Bank of America Merrill Lynch

Change is in the air. Across Asia Pacific, corporate treasurers are required to look at the bigger picture. They are monitoring the global economy more diligently. They are debating the implications of regulatory change more strategically. They are analysing currency volatility more stringently.

While treasurers are required to provide a more detailed view, this does not imply approaching foreign exchange (FX) management differently than in previous cycles. However, from where we stand, this shift is consistent with broader developments in the treasury space and emblematic of a deeper market transition that brings both added complexities and potential benefits.

Today, as companies seek new markets to expand their geographical coverage across the region, treasurers have to look beyond the traditional objectives of reducing cost and enhancing margins. To drive international business, treasurers are now expected to understand and manage complex changes, many of which are being driven at the onshore regulatory level. Developing an appropriate risk management strategy is now essential FX management.

Figure 1

For corporate treasurers, operating in Asia Pacific presents its own set of market-unique challenges. They come in the form of different currencies, regulations (onshore/offshore restrictions and requirements), physical management of operational cash flow, and supporting documentation for payments. For example, China’s introduction of structures like cash pooling is a good example of an onshore requirement which forces companies to strategically review their onshore FX management.

Figure 2

In addition to doing business internationally, changes in the global macroeconomic outlook, such as the growth of cross-border payments and considerable global currency volatility, are forcing Asia’s treasurers to adopt a holistic end-to-end approach to FX risk management. This approach encompasses reviewing and enhancing policies and processes, seeking new, more cost effective methods of settlements, adopting new and sometimes unfamiliar hedging strategies to manage FX exposures, and taking a more proactive approach to risk management when dealing with emerging global currencies such as China’s renminbi (RMB). Essentially, treasurers are looking at end-to-end solutions in two key components – transactional FX and strategic risk management. This is treasury transition in action.

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