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Be API ready and take your company to the next level. Welcome to CurrencyCast! My name is Augustin Mackinlay, I’m the Senior Financial Writer at Kantox and your host. In this week's episode we discuss the use of application programming interfaces, or APIs, in currency management. Stay tuned until the end because we’ll reveal why API readiness is a key component of any corporate strategy aimed at increasing the efficiency of Treasury operations.
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So what's an application programming interface? An API is a software-to-software interface that provides a way for two or more computers to communicate with each other. In currency management, APIs are used throughout the three phases of the FX workflow that we have discussed in previous episodes of Currency Cast: the pre-trade, the trade, and the post-trade phase.
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Let's look at this in more detail. Pricing with an FX rate involves using a currency rate in the pricing formula. How does the API handle that process? Companies can choose the connectivity settings that best suit their priorities in terms of the IT resources and security requirements. There are two options for integration: pull-based and push-based connectivity.
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In pull based connectivity, the API delivers data updates as requested by the Treasury team. A ‘Get API’ call, performed from company systems, allows teams to receive the latest FX rate. Now, three things to note: a) there are no limits on how often the API call is sent or on the number of currency pairs that can be requested, b) a response is immediately received, and c) the response includes the currency pair, the tenor of the exchange rate (with the spot rate provided by default), and a pricing markup. In push-based connectivity,
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webhooks allow Treasury teams to automatically receive FX and pricing updates derived from their own business rules. An ‘API post’ call is posted every time the market rate moves beyond a certain percentage level. Three things to note: a) there are no limits to the number of routes that can be set up, b) a push-based connectivity is preferred as it allows for a data driven approach to pricing within a FX rate, as opposed to a less relevant time driven approach,
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and c) companies can create their own customised rules, including pricing markup per currency pair and per client segment. Let's turn our attention to APIs and currency hedging. Companies submit pieces of exposure to currency risk known as entries: a forecast, a sales or purchase order, an invoice. An API call to submit an entry includes: the date, the amount of currency, the counter currency, the direction to buy or sell, the spot rate, and the value date.
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Two things to note: a) an API enables real time submission of the relevant information, thus optimising the process of exposure collection, b) APIs enable a critical component of currency management automation solutions: perfect end-to-end traceability. Along the journey from entry to position, to operation, to payment, each element has its own unique reference number, and traceability greatly enhances the quality of your reporting.
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On top of the advantages cited in terms of pricing, hedging, and reporting, API readiness brings a number of benefits to CFOs and Treasurers: Exposure information can be collected from different company systems: ERP, TMS, booking engines, and others. This is a requirement, among others, in hedging programs designed to ‘defend’ the budget rate. Spreadsheet risk -including data input errors, copy and paste error, formula errors,
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formatting errors- is completely removed from many processes. Finally, the digital treasury becomes a reality as API readiness simplifies and shortens further automation projects. Just imagine the operational costs and risks involved in manually executing the many steps of the FX workflow. API readiness is not a ‘tech-only’ issue. The more API ready they are, the more Treasurers will be perceived as strategic managers within the enterprise.