00;00;00;16 - 00;00;30;00
Unknown
What is the outlook for exotic currencies and how should treasurers manage liquidity and foreign exchange risk in the midst of heightened geopolitical tensions? 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 Marianna Polykrati, Treasury visionary and co-founder of the Tetraktys Treasury. Marianna, kalimera,
00;00;30;01 - 00;00;51;10
Unknown
and thank you for joining us in this episode of CurrencyCast. Thank you very much Augustin for having me. It's a great opportunity to talk a little bit about exotic currencies and in general FX and hedging. So, I'm thanking you a lot for this opportunity to talk and to talk a little bit about the pain points that we treasurers have regarding FX.
00;00;51;12 - 00;01;19;10
Unknown
Absolutely, now, Marianna, can you start by introducing yourself to our audience? Yes, of course. So basically, I would say I am a corporate treasurer to the bone, right. So I have been in Treasury, the last, I think more than 20 years. Previously I was, like all treasurers, in banking and I've passed from very large Greek multinationals in the Treasury, and in the last years,
00;01;19;12 - 00;01;45;28
Unknown
I am now the group corporate treasurer of AVRAMAR, a fish company, and I am also the co-founder of Tetraktys Treasury, which is the first Greek treasury consultancy company. So this is pretty much my background and what I'm looking at. Alright, then tell us, what does a Treasury consultancy do well? Well, at a treasury consultancy, what does it do?
00;01;45;29 - 00;02;06;22
Unknown
Especially if you have the founders, the co-founders, we have four people that are here participating. If you have corporate treasuries, what we do is we advise them things that have to do with day-to-day in Treasury. So, we are talking about debt management, cash management, risk management and at the end of the day, a lot of the bank account management.
00;02;06;22 - 00;02;39;10
Unknown
So, we are consulting in things that we have dealt with ourselves as treasurers, as corporate treasurers, and are still dealing because most of us are still corporate treasurers and we deal in this. Alright, now let's start the conversation by tackling the subject of exotic currencies. Exotic currencies, well, they're not important, right? Because they make up a small part of the overall exposure until of course they, they go down and they can really destroy a treasurer's quarterly performance.
00;02;39;10 - 00;03;09;29
Unknown
We saw that in recent years with the crash in the Argentinean peso, both Adidas and Puma. The stock price fell 10% and the quarter was devastated, the quarter’s performance, by the collapse in the Argentinian peso. So, Marianna, tell us about your experience in managing exotic currencies, maybe some of the challenges, some of the anecdotes, tell us about it.
00;03;10;02 - 00;03;34;00
Unknown
So I will start with a very nice statement that currently in my company, I have no exotic currencies, so I don't have this headache on a daily basis. But in my previous company, which was a big Greek multinational, we had more than 15 currencies, out of which we had 3 to 4 exotics.
00;03;34;01 - 00;04;10;23
Unknown
So we had Russian ruble, we had the Turkish lira, we had the Egyptian pounds and we had the the Indian rupee. So we had four very nice currencies that were a bit, you know, a very big pain point for the for handling in general for the operations. And you know, one of the big things and the issues is that when you are talking about these exotics, the solution would be most probably, let's start and hedge these, okay, let's do it because it makes sense. Sometimes,
00;04;10;23 - 00;04;45;17
Unknown
you know, the other side, the management you have to convince that FX hedging is not gambling because they have it like, this is gambling and It's not something that you can do. The FX hedging is is a strategy, It's not speculation. It is calculated to the risk to protect the company from the currency volatility. So, it involves a careful analysis of the market conditions, risk exposure, ensuring stability and predictability in cash flows rather than speculative gains and foreign currencies, and even more in exotic currencies.
00;04;45;21 - 00;05;19;13
Unknown
But the problem, you know, the problem arises when it happens, right? It's like the insurance nobody understands insurance prior to having an accident. Right. So and when you have an accident, then it's very expensive to do it. Right, I was about to ask to ask you more about this, how do you maximize exposure netting in the absence of maybe liquid foreign exchange derivatives, instruments like in most exotic currencies?
00;05;19;16 - 00;05;52;10
Unknown
Well, you try. Well, at least when we were in there, we were talking about the Egyptian pound, Right. Which we could not have at that point with the Egyptian bank. We could not have a specific derivative to buy or I mean, there were no limits or it was very expensive. What we tried to do is we tried to keep at one point a dollar equivalence or do like cash pooling, that we had similar ones in order to, you know, match and do and, and counterbalance the risk that we had in the Egyptian pound.
00;05;52;12 - 00;06;17;21
Unknown
But the strategy was in general to try and find the best way to repatriate the cash, when we had cash available. Right, which is very difficult as well in the case of the exotic ones, because usually there are a lot of capital controls that could not allow you to take the money very easily outside the country. So in general, we tried to buy locally from suppliers.
00;06;17;21 - 00;06;43;14
Unknown
So what we tried to do when you don't have is you try to buy locally from the local suppliers in the currencies and you try with the clients that you have to do it in different currencies, and in general, there are not a lot of ways that you can handle it, right? So so always hedging is the best proposal to do it.
00;06;43;15 - 00;07;03;07
Unknown
Now, if you don't have like an exotic currency and you have like a much more normal currency and you don't want to hedge because you like natural hedging, what you do is you start looking at the balance sheets, right? So you have the receivables, you have the payables, you have some part receivables and local, some part in the in euros.
00;07;03;09 - 00;07;24;09
Unknown
And then what you do is you can counterbalance either with suppliers or you can counterbalance with the banks. So having debt at the local currency to have a natural hedge between the two. So these are some ways that you can you can work on this. Nice. That's a short course on exposure netting. Thank you for that Marianna.
00;07;24;11 - 00;07;54;10
Unknown
But there is, I guess, issues also in terms of control and in governance. By that I mean if those currencies can be very volatile, it's just a short movement that can create and lead to very, very big headwinds. And I say this because there's recent news about a Canadian company in its Brazilian subsidiary. It's not an exotic currency, but it's a volatile one.
00;07;54;10 - 00;08;23;01
Unknown
And they had a problem of a lack of control and it turns out that a currency manager did an unauthorized trade and suddenly you're facing more than 200 million in losses. So how do you set control mechanisms there in regards to those currencies. Policies, procedures, for sure. I mean, Treasury, as you know, Treasury has has a lot to do with the structural policies and procedures.
00;08;23;03 - 00;08;43;16
Unknown
So one of the first things that you have to do is you have to sit down and see in the company that you have a specific risk policy regarding FX. So regarding the currencies, the limit, what is the trade allowed, what is not allowed, and put specific clauses and authorizations to people that can do it, that can proceed with the transaction or not.
00;08;43;21 - 00;09;06;23
Unknown
Right. And when you do it at least once a year with the annual budget, the annual strategy, you set these limits from the beginning of the year so there won't be any, you minimize the risk in order to not have an accident. Right. Because, you know, always things can happen and you can have accidents, right? Even with the best structures and the best policies.
00;09;06;25 - 00;09;30;05
Unknown
But this is a treasury, you need a lot of policies, procedures in this part of the business, you know, having in the beginning the risk strategy for FX, for interest rate swaps and in general for all the derivatives that you will be using as well as commodities. Right. So you need to have these and you have to have a specific line.
00;09;30;08 - 00;09;59;09
Unknown
So as I say, you need to prepare a market analysis very much as you can, because what happens when you have unexpected events, right? Nobody knows what can happen. I will tell you, when I was in my previous company and we had the 13 different currencies and 40, what we always said is, let's do I mean, you have regarding level, you have Romanian and Polish is you have factories in ten or 15 different countries.
00;09;59;09 - 00;10;26;12
Unknown
You say, okay, guys, maybe when we have one problem in Egypt, in the factory in there, we have a depreciation of the lira or in Russia. Fortunately for us as a group business, we have the other currencies are stable or they gain or they appreciate. So we will be able, the business won't be impacted because usually what you have is you never had many difficult events happening and then we've had COVID, you know, so we had a complete market disruption.
00;10;26;12 - 00;10;52;22
Unknown
So all the currencies went out of the regular course. So we had everything that was not going according to the plan and according to the budget and the business plan. But you have to prepare always for the worst case. So this is most probably, I think the second question that you had regarding the cash flow, how do you anticipate these things. Always take into consideration that you do not have
00;10;52;22 - 00;11;17;03
Unknown
hedges, right. So what happens is in the cash flow projection, you have your basis plan with rates and then what you do is on a monthly basis, what we do is we forecasted using different rates and seeing the variances of how this is impacting the business and trying to make on a monthly basis corrective measures and actions to protect the company and the cash flows.
00;11;17;06 - 00;11;42;25
Unknown
Again, the best way to protect is to hedge, right and to use the platforms and use all these different things regarding how to protect the cash flow, because at the end of the day, we need to protect the cash flow, which the cash flow is the number one. Right. But we're going to go into into cash flow in a in a minute and cash flow projections. Just to finish up on that, that point about control.
00;11;42;27 - 00;12;15;02
Unknown
So, for example, at Kantox, we’re believes that automation, far from weakening control, actually strengthens control. So for example, in hedging programs, in automated hedging programs, there is no way to execute a foreign exchange derivatives transaction, it is not inextricably linked to the corresponding commercial exposure. But there's another point that I would like you I would like to ask you.
00;12;15;02 - 00;12;53;09
Unknown
So, for example, we also are believers there in the second line of defense that we call FX centralization. So, for example, you can have setups where only headquarters not only says policy, but is the only entity authorized to execute external trades with banks. What's your view on, generally speaking, on the centralization, the no centralization debate in Treasury. This is very interesting, because I was working as a hybrid model as well.
00;12;53;09 - 00;13;16;05
Unknown
So this is a question like centralization, You said that what is the best model? I mean, all the groups are going back and forth with this. So what we have implemented in one of my previous companies is that we have the hybrid model doing talking about debt management and the FX and FX risk management, were all at the headquarter level.
00;13;16;10 - 00;13;49;25
Unknown
Only the group treasurer had the capability to execute all these hedges and transactions and in general, the acquisition, the sale and purchase of foreign exchange at specific rates. Then we decentralized the cash flows per entity. So what you do is you have all the big decisions regarding what is the debt, what is the amount of debt, at what rates, what are the hedges, what derivative to use.
00;13;49;25 - 00;14;28;10
Unknown
You do it at a centralized level and then we decentralize all the others, so we decentralize the flow and liquidity management regarding small operations, all the operational parts of the business. You leave it that the subsidiary levels. Really interesting yes. Yes, I haven't worked on an automated platform, more than happy to work on it in the future as it goes, because this is one of the things with the automated platforms is that you can close, you can lock down who can decide who can authorize and who cannot authorize.
00;14;28;16 - 00;15;05;26
Unknown
Absolutely correct. And as I just mentioned, we think that it strengthens control and far from weakening control. Now, really interesting Marianna that discussion about hybrid models in Treasury management in terms of centralization and decentralization. Let's go a little bit into the topic of liquidity management in general. So ever since you mentioned COVID, right, Ever since COVID, it's been at the top, among the top three concerns
00;15;05;29 - 00;15;33;21
Unknown
Of CFOs and generally on treasury managers, also liquidity managemen. Overall do you think that it is likely to stay that way for the foreseeable future as a top priority in in all of those surveys? I think liquidity management will always remain among the top top priorities of Treasury. Treasury is linked with cash.
00;15;33;21 - 00;15;58;11
Unknown
I mean it is it was in the past. It was it's now and it will be in the future. Right. So liquidity management will be among the top priorities of the treasurers. And the thing is that we will always try to find the ways to protect the cash flow and ensure that the liquidity is for the business at the right time, at the right moment when it is needed.
00;15;58;14 - 00;16;21;20
Unknown
So that's why we're working a lot on the cash flow for cash, in order to know what is needed, when is needed. And as we are quite risk averse as treasurers, we want to have the least variations in the cash flow that we project. In general, in Greece, I will tell you, so liquidity management and liquidity crisis
00;16;21;27 - 00;16;42;28
Unknown
handling is something that we have done a lot. I think we are one of the countries in Europe that we have handled this a lot. When it started in 2008, when all the countries in Europe had the liquidity crisis coming from Lehman Brothers, etc., For us, it took us more than ten years to exit. We had in 2015 capital controls in Greece, right?
00;16;42;28 - 00;17;08;29
Unknown
So you could not, so it was a very difficult period. So at least one of the things that we want to do is we are very resilient regarding handling cash and liquidity. And you have to be very creative, right, in order to find the cash and take it out at the right time and the right point to bring it to the companies that you need to do.
00;17;09;02 - 00;17;30;16
Unknown
So FX is one of the things that we do not like when we're having FX risk and volatility because it brings us disruptions. But usually we are prepared, like with one or two backup plans, right, in order to see if plan A does not go right, we have plan B and plan C. So this is this is what we're trying to change strategically.
00;17;30;16 - 00;17;54;03
Unknown
So as I say, again, I will go again with the hedging part, right. It is very important to do hedges and do hedging when you want, when you need, when you don't need it. I remember I passed the Russian ruble crisis. We started the budget. It started like 45 ruble, and it went within one week to 100, then 120, remember, and we were working on this,
00;17;54;03 - 00;18;15;02
Unknown
it was Treasury was leading all the daily discussions. So we were in a meeting room, the people from Russia and the people from the HQ. We were discussing how to handle on a daily basis, the cash that we had and how we're going to work. And of course when you go at that time, see what they can do to hedge this, I mean, it's too late.
00;18;15;09 - 00;18;46;20
Unknown
All right, so we've discussed liquidity management in general. Marianna tell us a little bit about the importance of cash flow forecasting in general. And if you see a use of artificial intelligence, GenAI tools in cash flow forecasting because I'm interested in your answer here because I think we have a slightly out of consensus view.
00;18;46;20 - 00;19;15;09
Unknown
But let me have your opinion first. Okay. So well, the trend today is with AI, how can generative AI help and assist in general all the departments. Treasury is one of the number one I think targets of AI. To assess why, because Treasury in general, we are quite used to automation and we are quite used to and not afraid of trying and being innovative in different tools.
00;19;15;09 - 00;19;36;09
Unknown
I think when we were discussing about the banking crisis a couple of years ago, nobody was. I mean, you're going to do something that will connect your system, your ERP directly with the bank and you will be doing this. And so it was something that was very frightening when it started like 20, 30 years ago. So we are quite accustomed and feel comfortable with AI.
00;19;36;11 - 00;20;00;01
Unknown
Now, what we are doing here is we are trying to find another pain point. So we're talking FX is one pain point, cash flow forecasting is the other pain point. So what we can do in order to help and improve the way we're working, because almost all the treasurers, if you ask them, they're doing the cash flow forecasting in Excel right. So if you have one currency and we have specific clients and suppliers, it's okay.
00;20;00;01 - 00;20;27;02
Unknown
But what happens when you're operating in different markets with different currencies? So you have a very nice consolidated cash flow that brings it in the specific currency at one specific rate. What we are doing with AI, is we are trying now to do we're getting automatically all the statements of our actual cash flow movements we are trying to generate using robotics, a cash flow, an actual cash flow on a daily basis.
00;20;27;04 - 00;20;48;03
Unknown
And then what we want to do is machine learning, which is going to be something we will try in 2025. We see the trends in the cash flow, how it works and then separate this doing cash flows in foreign currencies and using different scenarios of the cash of the FX rate in order to see what will be the cash flows in this specific grade
00;20;48;03 - 00;21;16;27
Unknown
if we have an appreciation or a devaluation, which we are doing currently manually with our hands. Right. So we have a scenario with, say, let's say not exotic, let’s say dollat at 1.10 and we have a scenario 1.05 and we have a scenario of 1. So we see how the trend of the capital will go. So what we we are trying to do is we trying to see if we can do this more automatically and having different scenarios and AI helping in this with a different scenario.
00;21;17;00 - 00;21;34;28
Unknown
So this is one of the cases. And the second one, of course, is that if you are doing hedging and we are having hedging policies, is how AI can help you and say we see this, this is the trend, this is how actually they do that. So we propose that you do a hedging that is with this rate for the next six months or the next three months.
00;21;35;05 - 00;21;54;24
Unknown
Okay. So this is pretty much what we are trying. I don't say that I am an expert, that we are working because we are trying. It is trial and error basis at the time. Okay. so this is what we are trying to do. What we are trying to do is trying to set this up and see how we're doing it.
00;21;54;24 - 00;22;48;27
Unknown
But in order to set it up, you have to have data accuracy, correct data, everything inside your ERPs and in your systems that can help you have this logical conclusion at the end of the day. And yes, of course, now, as I told you a minute ago, we at Kantox have a maybe, a slightly out of consensus view regarding the importance of super accurate cash flow forecasts, because we think that whether you're updating your prices very frequently or you keep your prices stable for for a campaign or budget period, and then have the ability to reprice at the onset of a new campaign period, or if you want
00;22;48;27 - 00;23;30;08
Unknown
to keep your prices steady as possible for as long as possible. We think we have the automated FX hedging solutions. They are designed to relieve, provide a little bit of relief, relief in terms of the degree of of forecasting accuracy. But I'm interested again in the AI topic and the the forecasting process, because is it fair to say Marianna, as I hear you describing the process that is not only about the the the aim of achieving an accurate cash flow forecast, Is it not?
00;23;30;08 - 00;24;01;01
Unknown
Also, here I'm asking you the question because as I hear you discuss this, it is not also about reducing the cost of the budgeting process, which is really sometimes a very costly process? It is time consuming, whatever is time consuming, it has a lot of cost as well. Correct, because when you do it, usually the whole organization is focused on the budget.
00;24;01;08 - 00;24;28;19
Unknown
It's not on operations, not on the day-to-day business. so, you're losing a lot of things. You can lose people from sales, from the potential sale, you can lose people from purchasing regarding this. So yes, it is a very costly process and it usually requires a lot of time from the people taking part. And a lot of stakeholders involved? All of them!
00;24;28;26 - 00;24;57;21
Unknown
I will I will tell you this. I remember when we were doing the budget in previous companies, that, number one, the budget was kicked off by the Treasurer. What we provided, the FX rates for the budget for the year. So, we went out, we dealt with the banks, with the solution providers, we prepared market reviews, working with Bloomberg, Reuters, whatever, you know, with whatever data we could find available.
00;24;57;24 - 00;25;22;16
Unknown
We prepared the reports. we spent like half a month working on the projections and seeing what the most suitable rate would be in a conservative scenario, most probably, to give this to the whole organization to start working on the budget, right. So they started working on the budget and then you have procurement that was going to go and they needed to see for the contract in order to start making all the agreements, what we want to do.
00;25;22;23 - 00;25;47;20
Unknown
We're talking about the factories to see what they're going to purchase, the sales department to see exactly what they're going to sell in the currencies and what is the mix that we wanted to do. Marketing departments regarding, because so you had to discuss with the whole organization, everyone was waiting for the FX rate, the daily FX rates that was going on for this and you started and this started in October and it ended usually in December.
00;25;47;20 - 00;26;09;19
Unknown
And you had the revised their budget as well. It started somewhere in the beginning of May and then somewhere in the end of June. So you have an organization that is working alongside with your operations in the day to day to start working and focusing on this. And then at one time you had suddenly the devaluation of the Russian ruble happening.
00;26;09;21 - 00;26;37;10
Unknown
So you had to start with the Russian factory in the Russian company. You had to start everything from scratch. All over again? All over again, with a different rate and you were waiting and the rate suddenly at 14 and 15 and you could not have different scenarios. Right. Because you have to run with the budget. So, if you manage at the end of the day to start automating and doing all this and running it with different scenarios.
00;26;37;13 - 00;27;01;01
Unknown
That will be a big help, not only for Treasury, for FP&A analysis, for the Finance Department, and for everyone in the whole organization, even for sales. I mean, if they had a very nice tool that would help them run all the sales, with the different rates, that would be incredible, right? Yes, absolutely and it's it's really interesting what you say
00;27;01;02 - 00;27;29;21
Unknown
And we didn't even discuss the operational risks involved here, the key person risk or the fact that hundreds, maybe thousands of Excel files go from here to there, and there could be data input errors, formatting errors and formula errors. So, the aspect of time that you mentioned, the aspect of the cost and the complications.
00;27;29;21 - 00;28;04;14
Unknown
But there is also an element of operational risk involved and that is here when we see of perhaps the potential for AI to to make a really important improvement in Treasury operations in general. I don't expect it to miraculously happen within the next, you know, five, six months. But I believe, you know, by the end of 2025, we are talking about good solutions that will be started to be tested a lot by the markets and the companies.
00;28;25;02 - 00;28;54;08
Unknown
And I want to add something small here, Aguatin. We need young people in the profession of Treasury because young people are tech savvy. They are much more focused on automation, They are much focused, they don't have the risk, though, that we want so it’s nice bringing generations together. The other generations to be the risk savvy and be concerned and hedge and the young people to bring automation in order to assist this as well.
00;28;54;13 - 00;29;26;03
Unknown
So they understand, they think with their laptop, they think technically. So they're very good in this. So it's very important, this thing. So are you implying that that automation has also, or the new tools in Treasury management would also create a more appeal for young people to enter the Treasury management space? That's really a very interesting thought, is that the case?
00;29;26;05 - 00;29;51;06
Unknown
Yes, it is. I think it's one of the, how can I say, it's a bait? It's a very nice bait to attract the young talent to have the technological because they want the technology and they don't want to spend a lot of time like we used to do more in the past with doing manual inputs of data etc. Right, they want to do things much more easier.
00;29;51;08 - 00;30;12;23
Unknown
So we have to take advantage of this and we have to incorporate because one of the new trends in Treasury is Treasury needs to have a systems analyst. So if you bring young people that are much more data orientated, with much more systems, doesn't mean an I.T. background right, because sometimes you don't need an I.T. background in order to do automation, right?
00;30;12;25 - 00;30;52;28
Unknown
So you need to have people that have a strong financial background, but to be very quick in adopting the new technologies. Okay. So so this is basically I think it will be very interesting and very challenging as well. Right. It reminds me of a conversation we had with Treasury consultant, Pieter de Kiewit. Pieter said, look, if I see young professionals who would decline a position, even if it's an interesting one, say from a salary point of view, if there are no, if the company has not
00;30;53;00 - 00;31;17;17
Unknown
so modern and up to date systems like a TMS and another also more perhaps cloud based, and API connected solutions. So this really is really an interesting point that you're raising here. We will see. It is, I mean, we have to be open to this in order to do, you know, and we have to be open and explore the opportunities.
00;31;17;17 - 00;31;48;16
Unknown
Right. So I think it would be very interesting. It is something that we are we have something to wait from the future for this, right? Absolutely. Well, Marianna Polykrati, so co-founder of the Tetraktys Treasury and well, Treasury visionary as we could see that today. And thanks a lot for for joining us today. We discussed a number of topics. we started out with with with exotic currencies,
00;31;48;19 - 00;32;20;02
Unknown
we then went onto liquidity management in general, the relationship between FX and liquidity management. And from there we discussed also cash flow and cash flow forecasting as a key for Treasury teams. And we went on to want to discuss a little bit more of the involvement of young people in Treasury management. Marianna, is there something you would like to add?
00;32;20;04 - 00;32;56;25
Unknown
Yes. First of all, thank you. It was really nice having this discussion Agustin, regarding FX. One thing for sure, FX hedging is not gambling, right? FX hedging is strategy. It's not speculation. And since our role as treasurers is to safeguard the cash and the liquidity of the company, we have to have the right tools in order to manage and keep the cash in the company as expected.
00;32;56;27 - 00;33;02;29
Unknown
Absolutely. We are on the same page. Marianna thanks a lot and see you next time. You’re welcome. Bye bye.