Glossaire

Other comprehensive income is part of the ‘Statement of comprehensive income as defined in the rules set by the International Accounting Standards Board (IASB). The statement of comprehensive income extends the conventional income statement to include certain other gains and losses that affect shareholders equity. Among the gains and losses recorded in ‘Other comprehensive income’ are unrealised FX gains and losses.

An outright forward contract is a contractual agreement to buy or sell a specified amount of one currency against payment in another currency at a specified date in the future known as the ‘value date’. By contrast, when both parties can exchange the funds before the value date, the forward contract is said to be ‘open’. Sometimes known as a ‘fixed’ or ‘standard’ contract, the outright forward is the simplest type of forward contract. For this reason, these forwards are widely used by businesses to hedge against the risk of losses due to adverse exchange rate movements. However, hedging with outright forwards makes it impossible to benefit from advantageous exchange rate movements. Outright forwards also offer no flexibility about the date of settlement. Both parties are legally obliged to exchange the funds on the value date. Businesses that need more flexibility over payment terms may prefer open or ‘flexible’ forward contracts.

Over-hedging describes the situation of a firm that has hedged in anticipation of an exposure that has failed to materialise completely. Over-hedging is common in companies with low forecast accuracy that apply static hedging, with a big hedge taken at the start of the period. If these positions. Firms that find themselves in a situation of over-hedging should unwind some of their hedges in order to free up collateral and increase the firm’s borrowing capacity—a top-priority in situations of stress in credit markets. Over-hedging can be overcome with the right budget hedging program or combination of programs that mix elements of static and dynamic hedging.

Over-the-counter derivatives (OTC derivatives) are financial contracts —such as forwards, swaps and options— that are traded through a dealer network rather than through a centralised exchange. The lack of an exchange that guarantees all trades means that the parties to an OTC transaction are exposed to counterparty risk.  While currency forward contracts are ‘over-the-counter’, futures contracts are ‘exchange-based’. Most companies, when hedging their FX exposure, rarely choose futures contracts. Instead, they rely on over-the-counter forward contracts, which are used in Currency Management Automation solutions.

A partially convertible currency is the monetary unit of a country where holders of the currency face legal constraints to convert it freely at the going exchange rate into other currencies. A currency is said to be partially convertible if one or more of the following three criteria about usability, exchangeability and market value are not fully enforced: it can be used for all purposes without restrictions; it can be exchanged for another currency without limitations; It can be exchanged at a given exchange rate.

Payment automation refers to a system for processing payments through software technology with minimal or no manual interaction.Payments Automation for International BusinessesInternational companies often rely on a global supply chain or have an extensive network of foreign suppliers. These practices may involve significant amounts of international payments, demanding a good deal of time and effort from the treasury department.In these cases, some companies implement technological tools to automate payment processing, minimising the workload of the treasury team and reducing human error.

A payment file or a ‘batch payment file’ is a document that specifies the details of each of the individual payments in a payment batch. A payment file contains all the information necessary to process a money transfer: the payer and beneficiaries’ account numbers, the amounts, pay-in and pay-out currencies, payment reference and other relevant comments. Companies with significant invoice processing activity tend to bundle payments to process them in batches in order to save time. The resulting payment file includes the details of all the invoices in the batch and is used by the bank or electronic payment provider to process all the transactions.

Payment netting is a procedure to settle transactions while minimising the need for funds to actually change hands. An asset manager may be ‘long’ Credit Default Swaps on Company A and ‘short’ on Company B. Instead of making payments for one position while receiving payments from the other, the payment can be ‘netted out’ to avoid unnecessary movements of funds.

The category of payments processing software includes an extensive range of systems that allow companies and individuals to send and receive payments automatically.Within payments processing software, there are two main groups: B2C and B2B payment solutions.B2C Payment processors are mainly payment gateways that allow merchants and e-commerce companies to process payments from their clients with different debit and credit cards and other types of internet transactions securely and in different currencies.B2B payment processing software refers to mass payments management solutions that help businesses to systematise, simplify and automate recurrent payments for partners and suppliers thereby reducing workload and minimising human error.

The category of payment reconciliation software comprises a wide range of technological solutions to automate bank and intercompany reconciliation processes, credit card matching and invoice-to‑PO matching in order to simplify payment reconciliation.It is impractical for e-commerce companies, marketplaces and, in general, businesses processing significant volumes of daily transactions manually, undertaking all the administrative tasks involved in reconciliation.These companies usually implement payment reconciliation software solutions, like Kantox currency accounts, to improve process efficiency. Currency accounts allow these businesses to maintain a very cost-efficient structure of multiple account numbers to channel payments from different customers or in different currencies.

A pegged exchange rate, also known as a fixed exchange rate, is a currency regime in which the country’s currency is tied to another currency, usually USD or EUR. The purpose of a pegged exchange rate is to stabilise the value of the local currency, keeping it at a fixed rate in order to avoid exchange rate fluctuations. A country may decide to stabilise its exchange rate through a pegged exchange rate to prevent an excess of under- or over-valuation. Such arrangements can work well for some time, especially if the country that applies it is seen as credible by foreign exchange markets participants. Sooner or later, however, differences between the currencies concerned —due to inflation rates, productivity levels or other factors— are bound to create uncertainty about the peg, which (paradoxically) could lead to even more exchange rate instability over the medium- to long term.