Mack (00:00)
What is the impact of trade policy uncertainty on US corporations? How do companies cope with the ups and downs of the dollar? Should they go for a market-based approach to foreign currency hedging? Welcome to CurrencyCast! My name is Agustin Mackinlay. I'm the senior financial writer at Kantox and your host. In this episode, we have the pleasure to welcome Bonnie Tomei, CFO at Salience Labs and
Andy Gage, US Director at Kantox. Bonnie Tomei and Andy Gage, thank you for joining us in this episode of the show.
Bonnie (00:39)
Thanks for having me.
Andy (00:41)
Pleasure to be here. Looking forward to our conversation today.
Mack (00:44)
All right, let us start with by introducing yourselves to the audience and let us start with you, Bonnie Tomei, please.
Bonnie (00:54)
I'm Bonnie Tomei. I currently serve as the CFO of a semiconductor company, Salience Labs. We focus on cutting edge innovation to win a significant AI infrastructure market. I'm also a licensed CPA in California. Over the past 20 years, I've had the privilege of managing treasury and broader finance functions across a range of private, public, and multinational companies. My background's been from capital markets and liquidity strategy
to cross-border financial operations, corporate governance, and M&A. I've worked closely with leadership teams during times of rapid growth, transformation, and uncertainty. I'm excited to be here today, and thanks for having me again.
Mack (01:35)
All right, that's great. Now Andy, what about you?
Andy (01:40)
Well, my background over the last 20 years has been very heavily focused on helping companies automate and optimize their FX programs. I helped start a company here in the US called FireApps that was ⁓ really the first company to really help automate foreign exchange programs here in the US. And I've also done quite a bit of work in the consulting industry with Deloitte Consulting around ERP implementation.
I'm really looking forward to sharing my experiences and my insights on what's happening in the market here.
Mack (02:10)
All right, that sounds great. Now, let us start with other questions. And trade policy uncertainty seems to be reaching new highs every day. mean, every day there's news on tariffs, on trade. And given that context, I'm really interested in your views on financial risk management. And let me start with you, Bonnie Tomei. Describe to us the typical day of a
CFO, a treasurer, as he or she comes with, let's say the confusing news flow. What keeps you awake at night? What solutions would be at hand in the event of or if global trade comes to a halt?
Bonnie (02:55)
Oh my goodness. Of course, uncertainty is all driven by that. If you take a look at first half of 2025 is entirely volatile. We have not seen such uncertainty for a long time. I think it's widely acknowledged that these uncertainties were mainly due to the trade policy that you have talked about and the public negotiations that cause a lot of the concerns. But at the end is interesting at the end of June, I think the market has now been desensitized.
And you can see that the Dow actually increased 5 % for the first six months. And so for the second half, I think the uncertainty is probably still there, but with a lot more countries to have to have talks with the US administration. And I don't think we're going to see the same uncertainty as we would see in the first half. However, what keeps me up at night is not so much the global trade. Having any of what we call trade war,
but what would be the continued weakening of the dollars and the tariff. US dollar to euro, for example, has weakened since beginning of the year by 13.7 % and the average base rates for tariff to the US now is 22%, depending on what you're importing. So for multinationals, many suppliers in the supply chain are charging their services in goods in US dollars. So it really depends on where they have their currency reserve as a company,
and where those companies do business. So the impact could be positive or negative both ways.
Mack (04:28)
Right. It's interesting that you mentioned the increase in the, in stock markets or the, because, ⁓ but at the same time, you mentioned the weakening of the dollar. So, for non-dollar based investors, it's not such an amazing performance in any case. There's absolutely no doubt about the resilience or tremendous resilience of us companies. And let me turn, to you, Andy Gage
In previous conversations, you have mentioned that the resilience of US companies, we've had several flight to safety episodes over recent years, decades, the 2008-2009 crisis, the course of 2020-2021 episode, and as Bonnie Tomei mentions here, a pretty volatile first half of 2025.
How do you think that companies could benefit from a more market-based oriented approach to financial risk management in general?
Andy (05:35)
Yeah, it's a very relevant question and I think it's very timely. ⁓ What I'm seeing in the market right now is, to Bonnie's point, that the tariff impacts are real and they are affecting margins. And it really depends on, to Bonnie's point again, what are they importing or what are they exporting and what direction the tariffs are impacting them. One of the things I'm seeing out there is that a lot of the local finance managers that companies are
trying to support as they're selling products abroad, they're asking for help to offset the margin impact, especially in cost of goods sold. And oftentimes currency given right now the weakness of the US dollar on the cost side can help them overcome the erosion to margins due to the tariff impacts there. So I've seen some interesting changes in thinking around that. But to your point, ⁓ you need to have an environment
⁓ or a technical capability to respond to that. So you need really good visibility to what your exposures are. You need to understand where the markets are going because we never know if the US dollar will reverse course. We've seen that happen again. All we need is another unexpected, know, ⁓ black swan event here where things could change very dynamically there. So you need to be prepared to react to that. But I also think ⁓ the other thing that ⁓ companies are dealing with right now is
prior to the impact of inflation that started post COVID going into the supply chain crisis, a lot of the risk management programs were based on zero to negative interest rate or low interest rate environments here. We're in a very different situation now. So you also have to be able to understand what the impact is not only on volatility of the currencies, but what's the cost of hedging? What are the forward point impacts on that? And that is...
that I've seen really evolve. People are being a lot more thoughtful, a lot more intentional about that. But again, that's difficult given, you know, if you're trying to do all this on spreadsheets, there's a lot more variables to take into consideration right now.
Mack (07:42)
Right. Now we're going to discuss exactly that point. And I would like even a little bit more precision on your part there, on the interest rate or interest rate differential between currencies management. But, Bonnie Tomei do you agree with, broadly with the views expressed by Andy, namely that a more flexible approach to financial risk management is needed?
Bonnie (08:08)
Oh, absolutely. I have to say as a Treasury manager, we a lot of times don't have the tools. So for example, if we think about the interest rate right now or both the interest rate as well as the currency, a lot of times all of us know what we intend to spend for the year ⁓ in whichever currencies because of our multinational organization. However, could we have a scenario where we can say, hey, let me play out the scenarios because it's so uncertain.
⁓ As a treasury manager looking at different currencies, can tell you that is no, nobody has the crystal ball. It's just a matter of, how much certainty do I want to have today? And therefore putting in contracts in place to cover that. And of course, if you have a Bloomberg screen, you would definitely see what the consensus are and they're not all the same. And then if you take a look at the US dollar today, it's really weakened, ⁓
based on a number of factors. You would think that with our interest rate from the Fed at about 4.5 % comparing to ECB at 2 % at the end of June, we would say that our dollar should be strong. But because of the sentiments of the market, the belief that maybe US dollars is eroding in this credit, and I think that US administration definitely have brought to light about how dire the situation would have been with
trillions, $36 trillion of deficit, making the credit market, if you weren't aware before, now you definitely are, that US is at the blink of bankruptcy. And then of course, also you add in ⁓ the US Trump administration wanting to weaken the dollars to help with export. It really depends on where you are in the equation. So that means something
that is flexible, that you can see some information, that you could do scenario planning would be helpful. And then you can figure out whether or not that certainty that you would get through a hedging contract would make sense.
Mack (10:15)
Absolutely. Really interesting there. Now, Andy, can you describe in little bit more detail, for example, how companies could apply, say, combinations of hedging programs in what I have in mind here is, say, the classical static program to protect a budget rate. How can you combine that with a more flexible approach that uses ⁓ API connectivity to maybe to add an element of hedging
firm sales or purchase orders.
Andy (10:46)
Yeah, no, it's really an interesting evolution of thinking that I'm seeing in the market right now. So, you know, a lot of times when companies have been setting up their hedging programs, they've been fairly rigid in their application of their policy. And I'll use a slightly different type of hedging. We'll talk maybe on a layered hedging program. So if company is going out 12, 18 months into the future and hedging their anticipated revenues and expenses,
they tend to set up layers of hedges in there. So you know, for the first quarter, they might be hedging at 80%, then two quarters out maybe at 60%, and 40 % on down the line there. But what I'm seeing right now is in situations where there's an opportunity to lock in the more favorable FX rate and also see opportunities to potentially
⁓ take advantage of positive carry where you're seeing some interest income coming from your derivatives, people may boost that up a bit here. And to be able to do that, first of all, you need to make sure your foundational layered hedging program is in good standing and well understood and auditable. But you want to have that opportunity if the market conditions arise. And those could be from two factors. One could be if the rates move in a certain direction and you want to lock that in,
and maybe see some additional protection built into your solution. Or one of the things I'm also seeing is companies are a lot more fixated on understanding the actual sales activity and purchasing activity and being able to combine their actual business performance with what they anticipated the forecast. Those two things require a very dynamic approach there. So you need that real time
visibility to what's happening in your business need to contrast that with the real-time visibility and what's happening in the market. And then have a technical infrastructure that is set up given your your policy and your risk appetite to to automate the reaction to that in the market right now. and And that I have seen people trying to do that in sort of a brute-force mode the best that they can given what they can see out of spreadsheets, but
I'm now seeing people really wanting to have a much more disciplined and automated approach because the worst thing you want to do is make a mistake and then have the auditors asking, why did you do that and not have the framework, the policy, and the automation in place to show why you were trying to do what you were trying to do in the best interest of the company.
Mack (13:16)
Absolutely. We'll come back to automation in a couple of minutes. Bonnie Tomei, let me come back to you as a CFO. You're obviously, and you told us already, so looking at the credit markets, do you look at the shape of the yield curve in the United States? And again, to what extent is the interest rate differential a source of concern? You mentioned the
the gap between US interest rates and some of those European currencies, right? And I think of the Swiss franc is that the Swiss National Bank cut interest rates to zero. So walk us again also through the you're thinking in terms of of credit markets, the shape of the yield curve and interest rate picture globally.
Bonnie (14:09)
Yeah, well actually to follow up on what just Andy said about having a technology to help with that, I have to say only your hedge program would only be effective on two fronts. One is obviously you want to have good economics. I think if you have that, would you would automatically win. So from a CFO standpoint, if I didn't get the hedging accounting treatment, which is
extremely complex, ⁓ even that ⁓ if I could derive the economic benefits from a program or anything that would help me ⁓ with deciding or any of those financial professionals ⁓ to derive that economic benefits would be beneficial. The second, of course, is the accounting. ⁓ I have a revenue that's coming in. wanted to, again, it would be very ⁓ punishing if I didn't meet my revenue goal.
And lo and behold, if that revenue goal is being diminished because of an exchange rate, ⁓ boy, the stock price could take a big hit, right? ⁓ Conversely, same thing with expenses. So I think there are a lot of those thought process we have to go through. Now, going back to what you were saying about the yield curve, interestingly, between one year and three, ⁓ one, I guess, current until two years, ⁓
The yield curve is kind of inverted because everybody's expecting rates to come down. So it's better for me to put money in right now on a money market that's current than putting it into something that's a year from now because the interest rate that I'm getting is lower. However, now you get to think about, well, the market really think the interest is going to come down. Is it going to do that? And of course, with Trump administration threatening to exact
Powell, ⁓ it very well may be coming down that way. And a lot of economists would say that today's rate is definitely not justified, other than that it is a ⁓ partisan decision. At any rate, so having said that, when I'm thinking about the yield curve and interest, interestingly, some of the companies that I've been with has multiple countries where they have currencies.
And you would think about places where they pay higher interest rate, compared to the US or anywhere else that you operate. It's very tempting to put more cash there, but I have to say there's a reason why there is a higher interest rate in some of those countries. And therefore don't look at just the short term. Think about the geopolitical environment. Think about the withholding taxes, in order to withdraw that cash at some point. think about.
The reason why you can send funds over there to earn that interest, sometimes it could be really powerful.
Mack (17:03)
Absolutely. Now you raised a really interesting point because I'm going to now ⁓ shift focus a little bit, but then we'll come back to your comments on accounting and because we're going to maybe link a little bit that up with the subject of automation. And so let's start the discussion ⁓ and let's bring it to the topic of automation. What we've seen in our interactions with US firms
that even some big companies, some Fortune 500 companies or companies that are part of the S&P 500 index were surprised to see the prevalence of manual processes throughout, especially in the management of the FX workflow. see some spreadsheets traveling.
So across the enterprise creating operational risk and making it more time consuming. So what is your view on this? Let me ask now Andy especially, how do you assess the say broadly, the degree of automation in treasure operations?
Andy (18:27)
Yeah, now it's interesting ⁓ in time the question. I just had a call with a company yesterday and when I stepped back and I kind of mapped out how they handled their currency risk, you had so many different things that were involved there. They had their ERP system that contained a lot of their exposure information. In some cases, they relied upon people in the field supplying forecast of their exposures. Then they've got a
put that together into something that they can make sense of and take action on. Then they've got a trading platform that they may want to use to execute. And then ultimately they need to account for this. And sometimes frequently they're going to be doing that in the treasury management system. And the person I was talking to, very senior guy in a roughly $3 billion company says, I would love to have all this in one place.
If I could just have one place to know I've got all of my exposure, I understand what I've risked, I don't have to jump from system to system, that alone would drastically simplify our life because now I know I've got one place to go. But I think the other thing that people are looking for when it comes to FX is technology is a big part of the conversation. The automation, in my opinion, enables ⁓ optimization. ⁓
it technology in and of itself is not going to solve everybody's problem. So I think the other thing that I'm hearing very strongly in the market right now is they want ⁓ additional human resources from a vendor to be there as their situation evolves, as the market evolves, as they make acquisitions, as they have an appetite for hedging different currencies there. So
I think it's this benefit of really streamlining the technology so you can simplify the process and enable you to be more strategic. But having people there that can help you make sense of what you're seeing as well and help you continue to optimize, that's really what I'm hearing is the perfect combination for companies right now.
Mack (20:29)
Right, really interesting. now, Bonnie, let's link a little bit what you mentioned about hedge accounting with what Andy just mentioned about automation. What I have in mind is what we call at Kantox end-to-end traceability, namely the fact that throughout the transaction journey from a forecast to a firm commitment and then an invoice,
then a conditional order, a hedge an operation, and finally the payment or a series of Each item has its own individual reference number. That's traceability. And we've seen that has been very useful in terms of hedge accounting because now you can sort of automate the compilation of all the
the element, all the information that is needed for hedge accounting. Do you see that ⁓ as a trend or overall?
Bonnie (21:38)
You know, I think that it really depends on the size of the company. ⁓ In order to really make it worthwhile for a hedge, it has to be some volume that matters. But I think what we could also take a look at from automation standpoint is how old and antiquated all of the systems are between all of the banks. And ever since the Silicon Valley Bank went bankrupt and then or went down, ⁓ all of us are scrambling to find a strategy.
to diversified and therefore it's not unusual that we're parking a small amount of dollars in multiple banks just to have that security and safety at some point knowing that if that bank went away, I have a way not having to spend three months to do KYC with one bank, I'm doing it all now and therefore I have a portfolio of banks in my disposal. Well, my accountant spent a tremendous amount of time
every team to go into each one of those accounts and pull out the information. And so anything that's automated would be helpful. The KYC process is very, very difficult as well. So if you could actually assign that to a treasury department, now that would be much easier to have all of that in one place, not just for hedging purposes, but also for your month-end, your regular daily or weekly cash review, your report that could show you
where the dollars are or where the pounds are, where the euros are. And then you layer that into what is the future payment flow from your purchase orders or your invoices from both collections and payment. I think that kind of builds a really good picture for all of us managing where a hedge would make sense.
Mack (23:29)
Absolutely. Now, in the same order of ideas, we've seen some, sometimes it's interesting the response to, of members of finance teams or credit teams and CFOs in regards to automation. And sometimes there's this fear of losing control. But what we see at Kantox is that
far from weakening control, automation enhances the ability of teams to exercise control over their operations. And again, take us a little bit in that direction. What are your thoughts?
Andy (24:16)
Yeah, no, it's one of those things that the proof is in the optimization results of the FX program. And I've seen numerous situations over my last 20 years where you can kind of do a time study analysis. So, you before you automate, people would often spend 70 % of their time just trying to get an understanding what their exposures are, which leaves them very little time, especially, you when you're hedging, you've got a very small window of time to execute your hedges there.
So when you spend most of your time just trying to understand what your exposures are, you're really not able to affect an optimal hedging program, whether it's making sure you're hedging the right currencies or you're doing it in a way where you're understanding what the impact is from a risk and a four-point standpoint. But on the other side of that, I've also seen time study analysis that says that dynamic changes. It almost inverts. So once you've automated
you spend very little time on the mechanical side of that, know, pointing to 30 % of your time just, you know, getting everything set up and you're spending the quality time on the financial results. I had one client that I worked with that had, took them two hours every day to look at their exposure. And once we automated them, ⁓ they took it down to 30 minutes ⁓ and their FX results, their P &L impact improved by 60 % because that time they spent was on
the value added activities. And if, Bonnie, correct me if I'm wrong, if I'm a CFO and I'm hiring talented people out of ⁓ world class universities, I want their brain power, not their spreadsheet skills to shine in the currency markets.
Bonnie (26:00)
Absolutely.
Mack (26:01)
Yes, Bonnie. Sorry.
Bonnie (26:03)
Yeah, no, I was going to also say about control that you mentioned. And the ROI definitely is something that needs to be looked at. And again, if we have all of the information available, we can make decisions. And that's the point is the ability to make that decision with good visibility of the future payments requirement, what you have now, and then layering scenario playing. What I also want us to talk about the control is that, look, there should be two separation.
two degree separation for folks who needs to know the information and providing analytical information versus the folks who actually have access to the bank. Folks who have access to the bank should be dedicated to doing nothing but verifying ⁓ the validity of each one of the requests ⁓ and then processing in the bank, verifying the information to be accurate. Whereas folks who are doing the analyticals to see whether or not a hedge makes sense and or
planning what our cash balances are, and then planning for capital needs for a transaction that's coming up or ⁓ anything that's strategic, are usually two separate groups of people. And so having that information separate from someone who have access to the checkbook, I think is essentially very important.
Mack (27:25)
All right. Now, really interesting. and let's, so before we wrap up this conversation, let me go back to the initial parts of the conversation, the context, the dollar. And again to you, Bonnie Tomei, what do managers fear most? If you're an exporting company in the United States, a strong dollar in a relatively stable environment or
or in an unstable or uncertain political environment that comes with a weaker dollar. What are the preferences of managers? What would you say?
Bonnie (28:11)
Well, in all cases, everybody wants a stable ⁓ environment, I'm sorry, it's always been uncertain. I would just say, economic outlook is, if anybody thinks that stable is really not, it may seem that way. However, I think from a US entity standpoint or a US company standpoint, looking at strong dollar versus weak dollar really depends on your business.
Most of the time, would say probably 70 % would think that strong dollar is better because you get to buy more with the same dollar. However, if you are the manufacturer, you're selling outside of the US, then of course, having a weaker dollar would be helpful because you get to push more of your products out to the marketplace and be more competitive. And I think this is exactly what the US Trump policy is supposed to be at the moment, is to help with manufacturing, help
drive those ⁓ supply and demand balances with exchange rate. Shoot, China's been doing that for years or decades. So ⁓ I'm sure that there may be that ⁓ at work. And therefore, again, as a Treasury manager, let's not put our thoughts into one idea only, just accept that it is going to be volatile and we'll just have to manage hopefully with good information and insight.
Mack (29:33)
Right now on that uncertainty and volatility question and engage, we've seen, of course, yes, there is no need to. I mean, it's obvious that the situation is certain. There's lots of trade policy and such as about to what extent does that matter for ⁓ currency managers? What I have in mind is here is
You mentioned earlier on about layered hedging. Is it not a way to handle that fear of forecast accuracy as you go little by little adding layers of hedges? mean, there are solutions to that, ⁓ those fears of forecasting accuracy. Is that not the case?
Andy (30:28)
absolutely. And maybe I can kind of add some context around my response here. And Bonnie, again, correct me if I'm wrong. You know, the perfect quarter in for a CFO is not to have to talk about currencies on their board calls. And that means their FX management team is doing their job, regardless of where the dollar is, regardless of where interest rates are.
The goal is to have FX not impact in a material way margins and or earnings per share if you're publicly traded company. Now to do that to your point Agustin, we need to have a technology framework that can adapt to market conditions, that can adapt to business conditions and be able to get the right information at the right time in people's hands to structure their programs. But it also has to be something that's agile.
And so, currency risk management programs are constantly evolving. And I think there's a real appetite for technology infrastructure to make that very easy, whether I'm doing a layered hedging program, whether I'm managing my balance sheet, you need to have something that can continuously adapt and evolve to your business conditions in there. At the end of the day, the goal on FX is keep your results as close to zero as possible. Gains are just as bad as losses,
⁓ in a technical term, because it signifies that you have an out of control process there. So the technology framework there is that A, take the policy and the targets and implement that in whatever fashion makes the most sense for the company. And then be able to be agile and adapt as market and business conditions change.
Mack (32:03)
Now, ⁓ Bonnie Tomei, CFO at Salience Labs and Andy Gage, ⁓ US Director at Kantox. We've been through a lot, we discussed lots of topics. We started with broad topic of trade policy uncertainty. We then discussed the interest rate situation, in particular in regards to the differentials between say European currencies and
the dollar in terms of interest rates and its implications. We then discussed some of the aspects around business process automation, especially in finance and in treasury operations. But let me ask to both of you, is there something you would like to add, Bonnie?
Bonnie (32:52)
Nope, I think we cover a lot of bases and great conversation.
Mack (32:57)
All right, now Andy, would you like to add something?
Andy (33:01)
Yeah, I think the last thing I'll add is just to reinforce the point I made earlier. If you're a corporate that's looking for a partner in managing your currency risk, you really want to make sure you've got both technology and the intellectual and compliance success resources to help you. And I just think that that's so key right now is to have a good partner in this currency risk management journey. It's ever-changing. It's very dynamic.
And there's a lot of smart people that can help companies achieve their goals there. And I think there's no reason that people should have to report bad results on FX given the availability of modern technology.
Mack (33:42)
Yes, on that excellent point. ⁓ So I would like to thank you both of you again for joining us in this episode of CurrencyCast and we'll see you next time.
Andy (33:54)
Thank you.
