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CurrencyCast

CurrencyCast is a treasury podcast series from currency management experts. In each episode, we look at the pressing foreign exchange (FX) risk issues facing treasurers and CFOs today and help them identify the potential gaps in their FX risk management strategy.

Making Sense of Exotic Currency Markets with Marianna Polykrati

February 5, 2025
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In the current volatile FX landscape, treasury management has become more complex than ever. From navigating exotic currencies to ensuring liquidity and leveraging cutting-edge technology, treasurers face a myriad of challenges. In this episode of CurrencyCast, Agustin Mackinlay sits down with Marianna Polykrati, Group Treasurer at AVRAMAR and co-founder of Tetraktys Treasury, to discuss these pressing issues.

The Allure and Peril of Exotic Currencies

Exotic currencies, whilst often representing a small portion of overall exposure, can pose significant risks to a company's financial performance. As Marianna points out, even seemingly stable exotic currencies can experience sudden crashes, impacting profitability. She shares her experience managing exotic currencies like the Russian rouble, Turkish lira, Egyptian pound, and Indian rupee, highlighting the challenges of hedging and repatriation. A key takeaway is that hedging is not gambling, but a strategic tool for mitigating risk and ensuring cash flow stability.  Treasurers should also explore strategies like cash pooling and balancing receivables and payables in similar currencies, consider local sourcing in local currencies to manage exposure, and be prepared for capital controls, planning repatriation strategies in advance.

Control and Governance in FX Management

Effective control mechanisms are crucial for mitigating FX risk. Marianna emphasises the importance of:

  • Clear policies and procedures: Establish well-defined risk policies, limits, and authorisation protocols.
  • Regular market analysis: Stay informed about market trends and potential disruptions.
  • Preparedness for unexpected events: Develop contingency plans for worst-case scenarios.

The discussion also touches upon the balance between centralisation and decentralisation, suggesting a hybrid model where key decisions like debt and FX risk management are centralised, whilst operational cash flow management is decentralised.

Liquidity Management: A Constant Priority

Liquidity management remains a top concern for CFOs and treasurers. Marianna stresses its enduring importance and the need for:

  • Proactive cash flow forecasting: Regularly project cash flows under different scenarios to anticipate potential shortfalls.
  • Hedging: Protect cash flow by hedging against FX volatility.

Developing backup plans to address liquidity challenges is also crucial.

The Role of AI in Treasury Management

Marianna sees great potential for AI in revolutionising treasury operations, particularly in:

  • Automated cash flow forecasting: Leverage AI and machine learning to generate accurate forecasts and analyse different scenarios.
  • Optimised hedging strategies: Use AI to identify optimal strategies based on market trends.

Data accuracy within ERP and other systems is crucial to support AI-driven insights.

Attracting Young Talent to Treasury

Marianna believes that the increasing use of technology in treasury can attract young, tech-savvy professionals to the field. This involves:

  • Modern systems and tools: Investing in technology like TMS and cloud-based solutions.
  • Data-driven skills: Encouraging professionals with strong financial backgrounds and data analysis skills.

Bridging generational gaps by combining the experience of seasoned treasurers with the tech-savviness of younger generations is also vital.

Final Thoughts

Marianna concludes by reiterating the importance of FX hedging as a strategic tool, not speculation, and the need for treasurers to utilise the right tools to safeguard company cash flow. This conversation offers valuable insights into the challenges and opportunities facing treasury professionals in today's dynamic environment.

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