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Forex Advisory Services Ultimate Guide

Written by QuantArt Market

Forex Hedging | 10 min Read

Published on: 10th  Nov 2020

forex advisory services

What are the various forex advisory services?

This article covers everything you need to know before you hire someone for Forex Advisory Services. Do read the article to the end and let us know if you have any questions. Forex advisory services should be called forex hedging advisory services or forex risk management advisory services. Companies with export, import or foreign currency borrowing/investments are subject to the volatility of the forex market. They need to hedge their risk and often need forex advisory services for the same as this s a specialized subject. 

The forex advisory services range from basic to advance, depending on the company. Here are a few examples of forex advisory services – 

  • Forex advisory to help the companies get the right rate to deal.  Most companies in India pay the wrong price on their Fx booking. This is a very real problem. Whether it is a simple deal or a complicated deal- the story remains the same. Companies get charged more, even without realizing it.

For a simple deal like spot, cash, tom conversion often the OTC prices are trended against the company. The various information platforms provide spot rate however mere spot information is not sufficient for negotiations since even the best of the screens provide information with a bit of delay. Cash-spot, tom-spot values are often not accurately known to companies. Forward premiums are also often trended whether for month ends or for broken periods.

Surprisingly, even many large companies also pay the wrong price for Simple Fx conversions. For medium-sized companies, the problem is more pronounced.

Many executives working in corporate finance are unwilling to believe that they are being charged a wrong price and that possibly is part of the problem. However, once they improve the price of their company, they invariably feel better.

For complicated hedge deals like LTFX, options, and swaps, the gap between a fair price and the traded price is much wider. Even the best of data dissemination provides incorrect bid offers and hence corporates do not know the accurate interbank levels. The services of a firm like QuantArt is often needed to calculate the right price, credit charges, and reasonable price to deal with. 

As forex advisor and forex risk management advisor, QuantArt has been able to improve pricing for 99% of its clients through appropriate negotiation strategies, knowledge building, and information/ calculators. QuantArt hand holds the finance team to ensure they get the right price. Doing deals at the wrong price should not be acceptable to anyone.

Ensure that your company is not charged a wrong fx price for deal bookings.

  • When a company avails foreign currency loan, their interest rates are often lower compared to local interest rates. However, the company runs forex risk on the loans. To hedge the loans, one first needs to evaluate what’s the right hedge strategy, what are different instruments, what should be the tenor of the hedge, scenario analysis along with IRR, and break-even analysis. Accounting aspects also to be checked to ensure the company’s P&L will not be impacted by volatility. Hedge accounting is something that often helps here. Hedge accounting involves hedge effectiveness testing and documentation. Execution of the chosen strategy requires checking of price, ISDA signing, term sheet checking, and many more activities. Guidance in all these steps is a part of forex advisory services or hedging advisory services of forex risk management services. QuantArt is the most knowledgeable forex advisor. 

  • One of the common forex advisory services is to prepare and modernize the forex and interest rate risk management policy of a company. How important is it to have a customized Hedging and Forex Risk Management policy for your company?

To say the least, a good policy prevents unexpected financial losses and boosts profits. Good FX Risk Management by Corporates makes the critical difference, where the margins are thin. So it is essential to do the regular due diligence of the company’s hedging policy and Risk Management for Forex policy and see what changes/updates are required. QuantArt has been in this industry for many years and has seen many currency movement cycles. Here are a few parameters which need to be optimized for robust Hedging and Fx Risk Management for Corporates.

An important starting point is the Identification and Measurement of Forex Exposure. What is the Fx exposure of your company and what are the associated timelines of this exposure? Based on our experience for Fx Risk Management for Corporates, we have noticed that 95% of the companies are not accurately identifying the Fx exposures for various reasons. How do you accurately, comprehensively, and objectively identify the Fx risks? The Fx risk cycle is different from the banking, accounting, and economic risk cycles. The starting point for us when we do Fx Risk Management for Corporates with our advisory clients has been to understand their business cycles and associated cash flow trends. We then work with them to identify the actual forex risks they have.

We also need to understand what kind of results are desired by the company with respect to its Forex management? Hedging strategy and objectives are to be aligned with the business objectives and investor’s objectives. Hedge strategy is to be optimized within the cost, profitability, liquidity, cash-flow, covenants, and commitments of the business to its various stakeholders. (300)

The next step would be to develop a transparent Performance Management to measure the gains and misses related to the forex decisions that are implemented. Most treasuries manage performance, hedge costs, and savings on a broad basis. Ideally, the measurement should be specific, detailed, numerical, and should be done in a disciplined manner as frequently as possible. The hedging policy needs to define the optimum level of performance management and these numbers need to be reviewed and updated so that it is relevant.

To implement the defined strategy and policy-the the execution machinery of the company needs to be smoothly operational. We have seen so many times in our experience that good forex decisions bring results only when they are implemented in the markets in an accurate, prompt, and cost-effective way. Each decision is both an opportunity and a risk until it’s affected within the defined time frame. The company’s structure, committees, and teams are to be in place to facilitate the implementation. The front, back, and mid-offices have to be adequately equipped as required and should be able to work seamlessly. Appropriate review structures will be required to ensure that the hedge decision making and executions are done so as to get the expected results. Ideas have value only when they have been executed effectively in the market scenario.

To modernize a hedging policy or risk management policy, often a company avails forex advisory services. QuantArt provides a significant edge here as they have experienced and extremely knowledgeable advisors. 

In addition to the above-mentioned examples, forex advisory services can include work related to regulatory guidance, handling complications like CSA, variation margin, offbeat currencies, and how to manage risk related to offbeat currencies. 

QuantArt provides forex advisory services. Some of the other names of services are forex and interest rate risk management services, hedging advisory, commodity risk management services, training and knowledge management, etc.

How have the forex advisory services evolved?

In India, forex advisory services started as many companies could not afford the screen for data and the advisors were able to help them. Then they started providing more information on markets and research reports along with risk management tips. 

However, in recent times QuantArt is bringing cutting-edge knowledge and mathematical approach to risk management. QuantArt as No.1 forex advisor is bringing the knowledge to corporates, which banks use for their treasury management. 

For whom are the services relevant?

Forex advisory services are relevant for any company which has forex exposure. The forex exposure can come because of export, import or foreign currency loans. Some of the companies, like shipping companies, have Fx exposure even though they do not export or import. This is simply because their prices are quoted in USD and settled in INR. 

How to select a forex advisory service provider?

When we select a surgeon, we look at the knowledge level and track record of the surgeon. Similarly, a forex advisor is hired for their expertise. That’s the primary criteria on which one should select their forex advisor. 

QuantArt appears at the top in terms of knowledge. In the specific area of forex and interest rate risk management services, QuantArt’s knowledge level will surpass even that of Big4 based on our opinion.

What should be the expected fees?

Fee for any advisory is dependent on value add and expertise level of advisors. The same is true for forex advisory services. 

QuantArt provides forex advisory services. Some of the other names of services are forex and interest rate risk management services, hedging advisory, commodity risk management services, training and knowledge management, etc. 

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