optimizing global payments: creating efficiencies through foreign
TRANSCRIPT
Optimizing Global Payments:
Creating Efficiencies through Foreign Exchange
April 10, 2012
Speakers
Margaret Wesson, Vice President - Global Rates and Currencies, Bank of America
Merrill Lynch
Leslie Wong, Director – Global Foreign Exchange, Bank of America Merrill Lynch
Moderator: Patrick Molloy, Director – Global Rates and Currencies, Bank of America
Merrill Lynch
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Patrick Molloy
Bank of America Merrill Lynch
Manages specialty team of eFX solution consultants, and serves as liaison between
Global FX and Global Treasury Services
Joined Bank of America Merrill Lynch organization in 2011 to lead integration of electronic
Foreign Exchange products with traditional Treasury Services products
Has 25 years experience in diverse roles within Global Transaction Services
Leverages his experience in Payments, Commercial Cards, Treasury Products, Client
Delivery and Operations to help clients design best solutions to meet their global
transaction and foreign payment needs
Holds B.A. from University of South Florida in Communication, obtained CTP from
Association for Financial Professionals in 2002, and is regular speaker at treasury and
finance forums on Foreign Exchange, Payments and Commercial Card topics
Director, Global Rates and Currencies
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Margaret Wesson
Bank of America Merrill Lynch
Provides expertise on Foreign Exchange online payments and hedging platforms
Uses knowledge of international products to help clients customize solutions to meet their
global needs
Joined Bank of America‟s Rates and Currencies Origination team as an eFX sales
consultant in February of 2011
Started career as Foreign Exchange Analyst where she gained 10 years of Foreign
Exchange and International Treasury experience
Has BA in Business Administration from Furman University
Vice President, Global Rates and Currencies
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Leslie Wong
Bank of America Merrill Lynch
Works with companies to identify foreign currency exposures, designs and implements
risk management solutions, and provides insight into constantly moving foreign exchange
markets
Advises on operational and accounting issues and offers structuring expertise
For past 17 years, has partnered with clients across various industries and sectors
throughout New England
Holds an undergraduate degree in economics and master‟s in business administration
Director, Global Foreign Exchange
Agenda
International Payments Landscape
What Platform Best Suits Your Needs?
Best Practices: Cross Border Payments / FX Risk Management
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Your Feedback
Are cross border transactions in U.S. Dollar or foreign currency?
U.S. Dollar (14%)
Foreign Currency (6%)
Both (80%)
Does your business conduct cross border transactions?
Yes (96%)
No (4%)
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Corporate Goals in Cross Border Payments
Common corporate goals for cross-border payments
Increased visibility, control and reporting
Improved processes to reduce resource needs and time/transaction
Achieve right mix of
– Local account payments vs. cross-border payments
– Payment Instruments for efficiency and cost
Simple integration with treasury for hedging and accounting
Single partner bank for global coverage, systems integration and servicing
Competitive and simplified pricing
*Source: Bank for International Settlements
Cross-border transactions represented 65% of $4 Trillion average daily FX trading activity in April 2010, and continues to rise*
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Local Accounts vs. Centralized Non-Account Based Solutions
Local Account Based Solution: Process payments from your company-owned accounts
in foreign countries
– Ability to deposit/receive funds in local currencies
– Easily managed by local staff
– Value of funds on deposit subject to rate shifts
Centralized Non-Account Based Solution: Process payments worldwide from your
central account
– Centralized management of all signatories, processes, funding
– Bank handles compliance and regulatory issues
– Allows for centralized staffing
There is no “right” solution.
You choose the method that works best for your company.
International Payments Landscape
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Why International is Important
Resource: 2011 Bank of America CFO Outlook Survey
Who
Why
Nearly two out of every three companies are doing business internationally in
some fashion
64% of all companies do business internationally
– 50% buy from foreign markets
– 48% sell to foreign markets
– 28% have foreign operations
Companies are going global first and foremost to get access to new
customers/markets
65% do business internationally to access new markets.
75% manufacturers named this as a main objective of international activities
– 33% want to access suppliers and/or materials
– 25% do business internationally to serve domestic customers with global
operations
Revenue expectations from international business is growing
35% companies polled generate between 11% and 49% of their revenues from
international business
58% of all companies think international business will represent greater percentage
of total revenues within next three years
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Why International is Important
Where
Resource: 2011 Bank of America CFO Outlook Survey
Where they’re doing business internationally, top foreign markets where
respondents are doing business include
Canada (83%)
Mexico/Central America (78%)
Asia (70%)
Europe (69%)
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What are FX Payments and Why Use Them?
Payments are generally completed through a spot transaction
A spot transaction is legally binding agreement to sell one currency and buy another for
nearest, standard settlement (value) date
– Example – American fashion designer receives invoice denominated in EUR for their
purchase of fabric from Italian fabric manufacturer. Fashion designer sells US Dollars
and buys EUR to pay invoice
– Example – American labeling company sells its product into Canada. Invoices in CAD
to be more competitive. Upon shipment, labeling company sells CAD and buys USD
FX Payments refers to a company‟s ability to complete a wire
transaction in a currency other than USD
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Leveraging FX Payments: Examples of Common Payment Needs
Supplier payables
Distributor payables
Agent/agency payments
Insurance payables
Expense payables
Business acquisitions
Corporate jet landing fees
Freight and duty payments
Ships‟ port and docking fees
Clinical Trials
Commercial
Payments
Legal
Payments
Employee
Compensation
Copyright fees
Patent payments
Global trademark registrations
License and royalty fees
Court costs or penalties
Dividend payments
Interest payments
Stock option payouts
Expatriate payroll
International pension payments
Tax payments
Sales Commissions
College tuition/student payments
Fellowships
Conference costs
Speaker Fees
Research grants
Investor
Relations
Education
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Payments: Wiring Funds Overseas – USD vs. Foreign Currency
Advantages of Local Currency Payment vs. U.S. Dollar
Companies who choose to wire payments overseas in USD can benefit greatly from
wiring funds in local currency
Wiring in local currency potentially allows company to:
– Increase Cost Efficiencies
International suppliers often increase prices in USD to protect themselves from
currency rate movement between billing and payment date
Charge can be more than 10% of total invoice
– Visibility to FX Rates – Obtain competitive exchange rate from your relationship bank
and know exact amount of foreign currency paid to supplier
– Gain favorable payment terms
Payments in local currency typically credited to supplier more quickly (foreign bank
does not have to stop payment for conversion)
There is potential to negotiate more favorable payment terms
Please note: There are appropriate scenarios in which USD must be remitted
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Key Benefits of remitting in local currency: Cost, Efficiency, Speed, Transparency
Advantages of Local Currency Payment vs. U.S. Dollar
Pay out of US$1,000
Company sends USD wire from their account at their bank
Wire is sent via CHIPS or through their bank‟s USD correspondent
USD correspondent passes on transaction to beneficiary bank‟s USD correspondent
US correspondent for beneficiary bank may levy lifting charge then sends out wire
Beneficiary's bank converts USD to EUR at unknown exchange
EUR proceeds are credited to beneficiary‟s EUR account
Payment can take 3-5 days and beneficiary bank may impose hold time when funds are not available
for withdrawal
Traditional
USD Wire
Local
Currency
Wire
Potential Savings on $1000 wire sent in local currency rather than USD
Traditional Local currency
Timing 3-5 days 1-2 days
Cost to payer $45.00 $17.50
Net proceeds $955.00 $982.50
Pay out of US$1,000
Company sends EUR payment instruction to BACML
BACML converts net amount from USD to EUR. Both USD and EUR amounts are known before
payment is released from bank
BACML routes payment directly to beneficiary‟s account via local wire network in Europe
Beneficiary„s account is credited in 1-2 days in EUR, and EUR is available for immediate withdrawal
What Platform Best Suits Your Needs?
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Channels for Executing Foreign Exchange
Online Banking Platform – primary online banking platform that encompasses domestic
& international wire payments capable of all payment types
Bulk Payment – electronic file submission allows companies to make large volume of
cross-border payments with a single file (file based connectivity)
FX Trading Platform – allows spot, FX forwards, swaps, typically online confirmation &
straight-thru-processing (STP) of trades
FX Advisory Desk
– Speak with FX advisor to obtain live pricing, market updates and hedging advice
– Gain access to other resources including
currency strategy
accounting consultation
risk management advisory
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Considerations for Transacting Foreign Exchange
FX can be managed at different places within a company
What types of channels are available?
How can they be used in an efficient manner?
FX Payment Options
Accounts Payable
Treasury – Cash Mgt
Treasury – Risk Mgt
Online Banking Platform X X
Bulk Payment X
FX Trading Platform X X X
FX Advisory Desk X X X
Best Practices: Cross Border Payments / FX Risk
Management
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FX Best Practices
Focus on Control, Efficiency, and Automation
– Achieve convenience and efficiencies
– Reduce risks and the potential for error
– Lower costs
– Centralize reporting
– Leverage multiple payment channels
– Increase internal controls
Managing cross border payments process:
– Trend toward centralization?
– Can internal processes help improve bottom line?
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FX Best Practices
Foreign
payables
Foreign
receivables
Cross-border
acquisitions or
divestitures
Repatriation of
foreign funds
Inter-company
cash flows
Foreign debt
Sensitivity
analysis
(Value-at-Risk)
Scenario
analysis
Other methods
Analysis of
accounting and
economic impact
on the financial
statements
Type of hedge:
Forward
Swaps
Options
Option
Structures
Natural or
operational
hedges
Performance
against a
benchmark (e.g.,
budget rate)
Accounting
effectiveness
testing
Review and
Formulate FX
Policy
Is the policy still
applicable
Has business
mix / strategy
changed
Update
The Risk Management Cycle/Process:
Exposure
Identification
Exposure
Quantification
Hedge Decision
Hedge
Evaluation Policy Review
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Case Study
Opportunity
Outcome
Client had a large number of USD wires being sent to Mexico
Operations in Mexico created a mismatch on company‟s payables and all revenue is generated
in USD
Until recently, company has been sending $200,000-$400,000/month to Mexico in USD with no
visibility/control on exchange rate
Recent change in financial managers, as well as 60% revenue growth, brought added attention
to FX exposure, making it a priority
Bank of America Merrill Lynch discussed benefits of dealing directly in MXN currency and using
hedges to lock in operating costs
Provided solution for one of biggest issues: no visibility or control of exchange rates
Company was also relying on Mexican accounting firm to communicate USD amounts that
needed to be transferred
Currently executing MXN forwards, as well as spot payments for remaining amounts that weren‟t
pre-purchased
In 2011, client saved 2-3% in FX related costs
Uses Bank of America Merrill Lynch online product, as well as our FX advisory services
Q&A
Have a question?
Please click on the question box, type your question, and send.
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Wrap Up
Cash Pro Foreign Exchange Services enables you to:
– Initiate payments to anyone/anywhere, with multiple payment instrument choices
– Make payments in over 140 currencies via integrated foreign exchange
– Choose right connectivity or input model to best support your business model
– Repatriate funds received from foreign customers
– Manage hedge execution transactions with forwards, swaps, or drawdowns
– Aggregate FX positions from multiple entities worldwide
– Access to our top-rated FX Advisory team for research, hedging and trading support
Next steps
– Create an action plan for FX and Cross Border Payments based on what you heard
today
– Contact your Treasury or Client Manager to get more details on Bank of America
Merrill Lynch solutions
Global solutions.
Client commitment.
Total connectivity.
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