Glossar

In the terminology of fx risk management, a stop-loss order is triggered whenever an adverse movement in the exchange rate automatically triggers the execution of a forward contract aimed at protecting the exposure against further unfavourable movements. When protecting the budget, Stop Loss orders are often set by management when the firm faces a scenario of unfavourable forward points. In such a situation, delaying hedges makes sense.

When the market rate reaches the ‘tolerance level’ set by the firm’s risk managers, the stop-loss order is triggered and the hedge is executed.  Because it is triggered only if a certain level of the exchange rate is met, a stop-loss order is said to be a conditional order. In Currency Management Automation, stop-loss orders are paired with take-profit orders (another type of conditional order) aimed at locking-in favourable exchange rate movements.  

In order to avoid duplicating the volume of hedging, stop-loss and take-profit orders automatically cancel each other. For this reason, they are known as ‘OCOs’, or One-Cancels-the-Other.

A subsidiary is a company, corporation or limited liability company whose controlling interest is owned by another company.The company with a controlling interest (more than 50% of the subsidiary's voting stock) is known as the parent company.The subsidiary, which is recognised as a legal entity in its own right, must comply with the national laws, and any local laws if necessary, of where it is located, regardless of where the parent company is based.One of the dilemmas faced by any company going international and setting up a subsidiary in a country with a different currency to that of the parent company is currency management. The equities, assets and liabilities of the subsidiary are subject to foreign currency risk if they need to be converted into the parent company's functional currency for accounting reasons.Depending on the company’s internationalisation strategy, it may be more advantageous to finance the subsidiary directly from the parent company, or for the subsidiary to bank locally.

Swap automation makes reference to the automated coordination and adjustment of payment and collection timing to optimise cash flow management in conjunction with foreign exchange hedging activities. This technology ensures that settlement dates for hedging instruments align optimally with underlying commercial cash flows, reducing funding costs and improving overall treasury efficiency whilst maintaining hedge effectiveness.

Ensuring a perfect match between the settlement of commercial transactions and the corresponding FX hedges —especially if the latter were taken long before— is next to impossible. To bridge the gap between these positions, swapping is necessary. It is the ‘cash flow moment’ of FX risk management. Swaps allows treasury teams to either: perform early draws on existing forwards or roll over existing forward positions.

However, swapping is complex and resource-intensive. This complexity carries operational risks —including fraud risk— derived from manual execution. That is why they need swap automation to free up resources and remove a series of operational risks and costs. Whether they need to anticipate or roll over FX derivatives transactions linked to payments/collections, treasurers can execute the process in just one click using Kantox’s Currency Management Automation solution.

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