The route is the goal…
Setting up processes
Within the scope of their business activities, payment flows in foreign currencies also occur regularly for companies. For the management of these, predefined rules and processes should be developed. For this, it is necessary to analyze the processes in the company. Thus, payment streams should be centrally managed (pooling). In the case of groups headquartered in Austria, which have subsidiary companies in various countries and bill foreign currencies, the financial agents are of the opinion that no foreign exchange risk is borne, provided that Austria is invoiced to the subsidiaries in EUR. From our point of view, however, this is wrong since each subsidiary in the respective region carries out the conversion transaction itself and the income at the Group’s headquarters is essentially dependent on it.
Another advantage of pooling is the volume. If each unit carries out conversions to the extent of e.g. EUR 1 to 2 million p.a. , A rather bad price will be achieved for these businesses. However, when concentrated e.g. EUR 20 million or more, the attractiveness of the banks will also increase, which will result in a better pricing (condition). This situation can be further improved by using an online trading tool.
Online trading tool
There are currently some online trading tools available on the market, which can be accessed via the Internet. However, the banks’ pleasures remain limited and lead to a regulation. Most banks specify the minimum volumes the customer has to trade each year through the online trading tool (e.g. EUR 100 million p.a.). The reason for this is not only very narrow margins but also operating errors, which have caused enormous damage in the execution of wrong trades. The approach of FRC – Finance & Risk GmbH with a multi-customer platform disables these entry barriers for our customer. In this case, trades must always be taken via FRC.
In principle, two types of business can be distinguished within the framework of foreign currency hedging.
In the case of the project business, it is advisable to calculate the currency exchange rates and define them as the purchase price. Based on these defined rates, the payment flows can then be planned and the yield managed. This is more difficult in the day-to-day business, since sales and individual payment flows can not be determined exactly. Therefore, an average or planned annual turnover must be hedged. The amount and number of respective payment flows should be derived from previous years.