FX Risk Elimination, Cost Savings, Centralisation 

EACT Breakout Session

Many corporates think that when they have implemented post FX-trade automation, to capture their FX trades in a central system such as a TMS, that they have captured all the value in automation. This session, presented by Kantox, a currency management automation software firm, suggested that this is not necessarily true.

In terms of commercial exposure, it was said that there are different types of FX risks. The first is balance sheet risk, which arises between the moment the invoice is raised and the point the invoice is settled. This is the shortest duration risk but is the only risk that can impact the P&L. This risk is often a C-suite  concern and thus can be a focus of many companies.

However, as this risk often starts the moment a purchase order (PO) or sales order (SO) is created, it can be deemed a transaction risk. This measures the commercial risk between the firm commitment to the order and its conversion. Businesses with price-setting power might focus on this risk, as they can define different prices per SO/PO.

A longer-term view is represented by cash flow risk. This starts at the moment of price-setting for sales or purchases. Cash flow risk exists as budget rates or price lists are set on a periodic basis and cannot be changed ad-hoc when there are fluctuations in the currency pairs.

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