Automation now enables corporate clients to reduce their FX risk and enhance liquidity management. Ahead of EuroFinance Copenhagen, Graham Buck talks to Deutsche Bank’s VP risk management solutions, Xavier Szebrat on how RPA has transformed one company’s FX hedging
Even the most stable currency can experience bouts of volatility, which don’t necessarily involve depreciation. Take the example of the Swiss franc, which for years had a ‘ceiling’ applied to prevent it over-appreciating against the single currency. When the peg was suddenly removed in January 2015, the franc jumped more than 30% in one morning to the consternation of Switzerland’s exporters.
But many other currencies have experienced sharp downward pressure. Sterling recently touched its lowest points against the US dollar in over 30 years following the June 2016 referendum vote for the UK to exit the European Union, with GBP joining the South African rand, Turkish lira and Argentine peso among those that have experienced periods of rapid depreciation.
The impact of currency volatility on the balance sheet of any multinational company can be severe, making foreign currency hedging an important part of corporate treasury’s toolkit. Yusen Logistics is a case in point. Established back in the mid-1950s, the company has developed into an award-winning global logistics provider offering expertise and services in freight forwarding and transportation. A subsidiary of the major Japanese shipping company Nippon Yusen Kaisha, today’s Yusen has global annual revenues of around €1bn, with 475 offices around the world and a workforce of more than 20,000 employees. Over the past three years the company has invested billions of yen into its five main regions of operation: Japan; the Americas; Europe; East Asia; and South Asia and Oceania.
As the company states in its annual report, it has various foreign currency-denominated claims and obligations, and “uses forward exchange contracts to reduce the impact of currency exchange rate fluctuations”. Figures included in the financial statements for its overseas consolidated subsidiaries are converted into Japanese yen when the statements are prepared, so currency fluctuations impact on both its business performance and financial position.