Here’s a brief look at what Internaitonal Treasurer will be exploring over the course of the next few weeks.
Treasury in the cloud
Moving treasury management systems to the cloud is becoming much more affordable for companies and doesn’t require major IT resources. However, there remain issues regarding security and customizing the service to meet companies’ specific needs. IT will analyze where the different providers of treasury management systems stand in terms of cloud offerings and the strengths and weaknesses of such offerings.
China cash flow
China has announced a few initiatives that will enable multinationals to move capital in and out of the country much more freely (see related story here). One initiative that was broadened in July to all companies gives subsidiaries in China the ability to lend RMB to their parent companies or affiliates outside China. The loan can then be swapped into whichever currency. Such loans might be used as collateral for swaps in the US and Europe. Practitioners anticipate a collateral shortage and some have questioned whether overseas cash could somehow be used as collateral without incurring tax consequences. Many companies, particularly technology firms but also various manufacturers, have a a lot of cash in China, so this could enable them to use that cash in a productive way.
Another China-related is the progress of an initial pilot program for RMB loans as well cash pooling. IT will take a look at how they used the new tools and tease out the pros and cons.
Falling INR
IT will take a look at the impact on the falling rupee on multinationals. The rupee depreciation is partly attributed to the US Federal Reserve talking about tapering QE3 and the rise of US rates, which has pulled money back from higher yielding emerging markets to the US. India also faces some other challenges, and so the rupee has depreciated more than other EM currencies. Depreciating currencies means companies producing in those countries and selling to those markets, and converting profits back into dollars, are losing money. On the other hand, companies producing in those markets and selling their products in the US are seeing production costs fall, and they’re seeing greater profits.
IT will also look at other EMs and see how companies are positioning themselves to hedge risks and benefit from depreciating EM currencies. More specifically, companies are increasingly adopting onshore deliverable forwards, which are simpler than non-deliverable forwards and more precise hedging tools, but also have some downsides.