The complexities and risks inherent in currency management exist whether your business is large or small. The risk is still proportionately relevant to the business and the bottom line.
Where the volumes warrant it, some organisations have internal Forex treasury departments. This is not necessarily possible for most organisations as the costs of managing a Forex portfolio properly in all aspects is prohibitive.
Valufin provides you with the full service of an in-house treasury department at a price affordable for the volume and the size of the organisation.
The investment involved in running a treasury operation with Valufin is exceeded by the direct savings in rates and reduction in overall costs. The knowledge, information, risk control and reporting are added bonuses for free.
How Valufin delivers the outsourced service
Information about exposures
Valufin needs to know about every planned project, order, shipment, invoice and payment due. Without this information there is no way risk can be adequately monitored. Please see in information on ‘FRM’ below which supports this process.
Customers inform Valufin by working within our online software capturing this information. This is handled by the orders and shipping department and overseen by the finance senior (or similar structure depending on the organisation).
Information about hedging instruments
As Valufin is independent, we are able to view information about all hedging instruments, irrespective of the provider. (It would not be possible for a provider to offer this service as it would be difficult to give this information to a provider if they are not the only one, because there always should be more than one provider to ensure competitiveness).
This information is initially captured on take-on and thereafter kept up to date by Valufin as trades are negotiated, contracts used, swaps generated, spot purchased or sold and payments and receipts processed etc.
Use of Online Forex Risk Manager (FRM) software
The online Forex system allows for the accounting of exposures accurately by catering for the raising of exposures at the correct rates and adjusting these where necessary due to shipment changes in value, date and delivery.
FRM allows for exposure management, proactive management of currency transactions, revaluing the portfolio, reporting and managing the payment process.
The FRM payment process ties together the hedging instrument with the exact exposure at the time of flow of funds and not before. FRM ensures the correct profit and loss entries against the respective accounting and costing rates.
This process of managing the hedging and exposures and tying them together at the time of flow of funds, generates what we refer to as the “Effective Payment Rate“. This includes historic related cash flows, current cash flows and future cash flows relating to the transaction. The ability to tie in all three time periods on multiple instruments for multiple invoices can only be achieved through a system of this nature.
Mandates to act
After the setup, analysis and risk profiling of the Forex portfolio, a mandate is drafted for Valufin and for the banks giving the respective permissions for Valufin to trade in the customer’s name. Each customer defines their degree of involvement in this day to day decision making on the portfolio.
Monitoring of positions
The currency markets move and the underlying exposures are constantly changing. Valufin manages these dynamics in terms of currency pairs, values, duration in a “pooled” method and allow, through this strategy, the ability to hedge the downside and allow for upside opportunity with negligible risk involved.
This strategy was researched and proven to perform better than the unhedged spot market or totally matched hedging strategy over a short and long term period of time. This MBA research was carried out by Sharon Constancon in 1991. Click here for further information.
When the portfolio, markets, payments or receipts demand that a transaction is required, Valufin will research the market conditions, instruments, providers, currency split, duration and determine the best fit for the current need. The providers are requested to give quotes and the transaction is negotiated and agreed in the customer’s name within their credit facility.
Valufin provide confirmations as do the provider. Both confirmations are sent to the customer directly and Valufin checks a copy received by them from the provider to ensure that they match in all respects. Where contracts require signature of acceptance these are forwarded directly by the provider to the customer for the their checking against the confirmation, signature and return.
Valufin, using FRM, processes all bank transactions and payments / receipts as they are negotiated. The customer keeps the underlying exposures up to date within FRM. FRM provides information to the accounts department to ensure the correct information is accounted for in the ledgers and related customers systems.
Valufin checks all paperwork and follows up with the providers during all the steps required relating to the transaction. This will involve ensuring paperwork flows from the customer to the provider is correct, delivered on time and processed in terms of funds delivery on time by the provider.
Any problems, issues, complications or questions are handled by Valufin on behalf of all parties.
For the above service we charge a setup fee, a monthly licence fee for FRM and a monthly retainer fee for the Forex management service.
These combined fees are less than the direct savings created.