Why Successful Treasurers Integrate FX Risk and Cash Management

As treasurers watch global equity, credit, and FX markets wobble on each utterance from U.S. President Donald Trump, they quietly prioritise cash and liquidity management tasks.  Meanwhile, recurrent episodes of financial volatility are putting the spotlight on the multifaceted interactions between FX and capital markets. 

Whether FX liquidity falls on “tariff volatility”, CHF reaches record highs across the board, or DKK weakens against EUR, you get the point: currency markets considerations are top of mind as treasurers beef up their cash and liquidity management capabilities. We can only expect more such episodes going forward. 

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Micro-hedging and cash flow forecasts

Amidst the flurry of reactions to Mr Trump’s tariff measures, Shopify, the U.S.-based e-commerce platform, is decidedly embarking on a policy to sell in more currencies. Although we are not privy to any information on the matter, the firm’s Form 10-K says it loud and clear: 

"We have launched localised pricing plans in select countries where we bill in local currency in order to reduce friction and attract more merchants to our platform. As our operations continue to expand internationally, we may observe additional risk in other foreign currencies” — Shopify

As the treasury team updates its 30, 60 and 90-day cash flow forecasts, the FX element coming from foreign sales will introduce an added element of instability. While textbooks suggest hedging the transaction cash flow exposure, things are more complicated in real life. 

To begin with, the relevant data may be located in different company systems: ERP, TMS, and spreadsheets. On top of that, a rule for aggregating exposures is needed. And what about forward points management? CHF trades at a forward premium to USD, but BRL does so at a deep discount. This requires different approaches.  

There is a way out of these practical dilemmas. Micro-hedging programs provide finance teams with the flexibility to remove any FX-related uncertainty in their cash flow forecasts. This is because they rely on API connectivity to capture the exposure from any company system, delaying hedge execution when needed.

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The ‘cash flow moment’ of FX risk management

In the magic world of textbooks, there is no time lapse between the settlement of a commercial transaction and the corresponding FX derivatives instrument. But real-world treasurers know it too well: most of the time, a lot of swapping is required. 

Time and again, we encounter situations where members of treasury teams manually execute the time-consuming transactions needed to perform early draws on existing forwards, or to rollover existing forward positions (much more on this specific topic in our next blog). 

The good news is that relief is at hand. Swap execution that comes with Currency Management Automation frees up resources and removes operational risks and costs. Whether they anticipate or roll over FX derivatives transactions linked to payments / collections, treasurers can execute the process in just one click.

With complete visibility and control, the finance team obtains:

• Swift integration with ISO20022 

• Traceability between swap legs and the underlying forwards

• Granularity in terms of FX gains and losses and forward points 

• IBAN and BIC setups integrated with the ERP and TMS

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A liquidity management upshot

As they embark on the journey to sell in the currency of their clients and buy in the currency of their suppliers, firms like Shopify are in for a pleasant surprise. The decision is likely to yield benefits that go beyond the aims of “reducing friction and attracting more merchants to our platform.” 

The strategic orientation to use more currencies in commercial operations also produces a number of liquidity management and working capital-related benefits. In this age of Trade Policy Uncertainty, these advantages seem compelling enough: 

• Selling in more currencies ⇒ less credit risk in accounts receivable 

• Buying in more currencies ⇒ extended payment terms from suppliers 

• Delaying hedge execution with conditional FX orders ⇒ collateral optimisation

• Maximising exposure netting ⇒ collateral optimisation 

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Ensuring liquidity at all times

Now consider the case of the global pharmaceuticals, biotech, healthcare, and cosmetics company Gerreshimer. (Again, we are not privy to any information on their FX policies). In the 2024 Annual report, we read that the German group’s finances are: 

“... controlled and optimised centrally [...] Our primary goal is to ensure liquidity at all times by procuring funding on a centralised basis and actively managing foreign exchange risks and interest rate risks” — Gerresheimer

This is a model for a well-organised treasury governance setup. Here, again, we can report good news from the treasury technology front. Scalable tools that were once exclusive to large enterprises make it possible for any firm with foreign subsidiaries to implement solutions like Kantox In-House FX. The main benefits include:

• Better terms with banks, as only one entity executes external trades

• Segregation by subsidiary in terms of FX policy, trading and accounting

• 24/7 internal FX liquidity with customisable markups set by HQ

• No operational/fraud risk from unauthorised positions in FX derivatives

• Maximising exposure at the group level, thus improving collateral management

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Conclusion: numerous and meaningful touchpoints 

By introducing a neat distinction between tasks, most treasury surveys enumerate sets of priorities that are seemingly separated from each other. Courtesy of various crises, cash and liquidity management issues have consistently claimed a top position in most rankings.

But are these treasury surveys taking the right approach? This blog showed that a clear separation of treasury tasks does not correspond to the real world. The touchpoints between FX risk management and cash and liquidity management are too numerous and too meaningful to ignore. 

It is only when we abandon the siloed approach between tasks that we realise how much technology is bridging the gap between FX risk management and cash and liquidity management, to the point of making them virtually inseparable.