Case Studies


1. Harnessing the Effectiveness of a Natural Hedge
2. Innovative Hedge Strategy for a Complex Risk Profile
3. Managing FX Risk in a 24X7 Global Operation

Harnessing the Effectiveness of a Natural Hedge

Context and Issue:
  • A leading manufacturer and trader of precious gems and jewellery.
  • A global supply-chain and customer network, multinational operations, varying credit periods and high number of transactions exposed the profits to volatility in FX and Gold prices.
  • Despite enjoying a significant natural hedge, the treasury was unable to contain the impact of market volatility of the profits and the Balance-Sheet.
Approach and Solution:
  • Designed strategy to identify, monitor and seamlessly manage risks arising from price mismatch between their sales, purchases, borrowing and inventory.
  • Automated the risk management process by designing and implementing software to capture real time exposure data, proactively manage hedging through effective triggers and enforce controls through a detailed MIS.
Impact:
  • Profit margins and Balance-Sheet are protected irrespective of market volatility and direction.
  • As there is a robust market-neutral system in place, the Management can easily delegate hedging operations to the Treasury Team.
  • The CFO and the Treasury team can take and execute hedge decisions in a better manner with the help of the new strategy and system.

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Innovative Hedge Strategy for a Complex Risk Profile

Context and Issue:
  • A global leader in manufacturer of Chemicals and Fertilizers.
  • Multiple product lines, with diverse business models, supply chains, and regulatory environments.
  • Professional treasury, ERP systems and processes employed, but the sheer complexity of the risk profile made risk management very difficult.
  • Government subsidy created significant economic FX risks that could not be mitigated by solely hedging actual transactions.
Approach and Solution:
  • Designed hedge strategy to manage risks arising from complex linkages between imports and subsidy receipt rate for fertilizer business.
  • Liaised with Regulators and availed special approval to hedge economic risks with a hedge instruments not normally permitted.
  • Drafted a comprehensive risk management policy to align strategy with business reality of chemicals and fertilizer industry, and
  • Automated the risk management process, and implemented across the Treasury and Business Units (BU)
Impact:
  • The new policy protected the FX rate seamlessly, within 10paise of the target.
  • The company’s cash flow certainty increased as the worst-case scenarios were identified in the framework.
  • BU Heads developed comfort as new strategy aligned with their business dynamics and improved their reporting of treasury performance.

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Managing FX Risk in a 24X7 Global Operation

Context and Issue:
  • Global money transfer company with operations in more than 100 countries and 50 different currencies across various time-zones daily.
  • The sheer volume and complexity of FX transactions and footprint, held back any serious efforts at mitigating and managing the risks.
  • Lack of an objective, transparent, and real-time risk management and monitoring mechanism eroded profits and hampered pricing and growth decisions.
Approach and Solution:
  • Simplified and automated risk identification to distill a risk footprint of 15 major currency exposures that constituted more than 80% of risk.
  • Devised hedge strategy to protect card rates and set-up an automated system to identify, track, monitor and hedge FX risks across different countries and time-zones on an almost real-time basis.
  • Designed data linkages and MIS reports to give Region Heads and Management, a clear view of risk, hedges and profit margins.
Impact:
  • Achieved clear visibility of profits and exchange margins across each business corridor.
  • Acquired control over day-to-day FX volatility by continuous tracking and monitoring of their FX risk.
  • Their profit margins increased guided by well-informed business decisions.

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