Hedge your cashflow with okoora ABCM™

Cashflow is the lifeblood of every business, and a company’s stability is ultimately determined by its ability to sustain a positive cashflow for the long term. Keeping a positive cashflow, where your income is higher than your expenses, can take a negative turn if you don’t consider exchange-rate risks in managing your currencies.

Cashflow hedging is a form of insurance policy, protecting a company's cashflow against variable factors. Multi-currency and cross-border activities always risk going over budget due to volatile currency markets, which can eventually hinder your efforts to maintain stability and plan ahead.

Okoora's ABCM hedging toolkit is powered by smart hedging methodologies and by a wizard that enables you to take the right action at the right time to minimize the uncertainties in juggling multiple currencies.

With okoora ABCM’s balance-sheet hedging module you can protect your equity from future unfavorable exchange rates and keep your projects aligned with budgeted exchange rates using the comprehensive project hedging module.

How does it work?

The hedging policy is the preferred method to manage your foreign currency cash flow, while taking into account several parameters such as exchange rate, time period, hedged amounts and more. Okoora ABCM will provide notifications, recommendations and possible plans of action based on the specified hedging policy.

1. At first, you need to get inside to "workflows" page and click on "Cash flow", and then click on "policy" page.

2. In the first question the system will ask you if you want to set up a basic hedging policy or set up an advanced hedging policy. The difference between those two options is that the basic policy process is short, and its main parameter is the sensitivity to changes in exchange rates.

In the advanced hedging policy, there are a series of general and business parameters that come together to create, along with AI and machine learning, a smart and personalized cash-flow management policy.

3. Let's look at the first option that creates a basic hedging policy. First, you will need to define the cash-flow currencies. Here you need to pay attention that each cash-flow board includes one currency pair. If you work with several currencies, it is possible to open several cash-flow boards, one for each currency pair.

4. The next question refers to functional currency. The company need to specify which currency it uses to manage it business operations.

5. At the next step you will need to choose the company's cash-flow level of sensitivity to changes in exchange rates. This question will help the system realize the recommended of hedging rate of the company.

6. At the next step the company will define it target exchange rate for this cash-flow. The target exchange rate is the budgeted exchange rate or any other exchange rate which the company uses to measure the cash-flow during the time period. In this question you can set a target exchange rate or let the system automatically set the target exchange rate for you.

7. Finally, the system will summarize the basic policy and reveal the company’s recommended hedge exposure rate. This percent reflects the recommended cash-flow hedging ratio that arises from changes in exchange rates.

Let's move forward and see how the company can set up an advanced hedging policy: The first three questions are similar to those of the basic hedging policy.

8. At the fourth question you will need to choose the level of certainty for this cash-flow. This question depends on how much are you sure that the projected cash-flow will be as predicted.

9. At the following question the system will ask you about the company’s ability to affect the commercial prices of your customers or suppliers.

Those questions will help the system determine if the company could update its customer price list or re-negotiate terms with its suppliers, in a case when there is a change in the company’s exposed currency exchange rates that can impact the company's revenue.

10. The next question will focus on the level of the company's business differentiation between itself and its competitors: If the company's exposure to changes in exchange rates is similar to those of the main competitors, then the differentiation is very low, and vice-versa.

11. In question number seven the system will ask about the level of your business competition, in order to realize how competitive is the company's business environment.

12. The following question will ask you about the gross profit percentage in relation to revenues. The gross profit points to the level of risk and sensitivity to changes in exchange rates of your company and will help the system analyze your company's sensitivity level to changes in exchange rates.

13. In the next question the system will ask you if your company's activity has any seasonality? If we take for example a company that sales bathing suits, its main seasonal activity will be at the summer, so in this case the right option will be "High seasonality, strong high seasons".

14. The following question will focus on the level of sensitivity to changes in the financial expenses item in the financial reports. High sensitivity occurs when a company is publicly traded, when it reports its finances publicly, or when it has strict covenants to the banking system.

15. In question number eleven the system will ask you about the level of sensitivity to taking on credit. If the company has no problem providing collateral for hedging deals, then the sensitivity is low. If the company can't provide any collateral, then the sensitivity is very high. The answer to this question will also affect the recommended hedging instruments.

16. The following question will ask you if you are an importer or exporter.

17. The final question will ask you about the company's target exchange rate for this cash-flow. The target exchange rate is the budgeted exchange rate or any other exchange rate which the company uses to measure the cash-flow during the time period. In this question you can set a target exchange rate, or you can let the system automatically set the target exchange rate for you.

In the second option, the system will set a target exchange rate based on a methodology that takes into account market data, existing hedging deals if there are any, and an average operational spread. This methodology is commonly used by companies and businesses from different industries.

In the final step the system will determine your dynamic hedge model and recommend a hedge policy for the next 12 month on a quarterly basis and apply the policy into your cashflow.

Now, you can shelter your business from currency storms, confidently predict your incoming and outgoing cashflow, and save on currency transaction.

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