Trinity TMS helps determine foreign exchange positions and continuously monitor the level of hedging by deriving the company-wide foreign exchange positions and the portions already hedged from currency-specific planning data and comparing them with the predefined hedge ratio, meaning the proportion of the total position to be hedged. When the system is used globally, the positions of all entities are naturally included, allowing natural hedges to be taken into account. If an underhedged position is identified, additional hedging transactions must be entered into depending on the duration of the exposure gap. Overhedged positions may need to be unwound, as they can result in unnecessary costs.
The exposure overview makes it possible to quickly determine which currency position and period require hedging and to select the appropriate instrument. Unless companies sell the currency directly through spot transactions, most businesses use foreign exchange forwards to hedge against exchange rate fluctuations, as these instruments are cost-effective, clearly calculable and easy to understand. Where foreign exchange risks relate to non-convertible currencies, such as ARS, KRW or TWD, non-deliverable forwards (NDFs) are also commonly used. In terms of their structure, NDFs are similar to forward transactions, with the difference that settlement does not take place in the non-convertible currency, but in a convertible currency such as EUR, CHF or USD. Various types of foreign exchange options or currency swaps are also sometimes used in corporate treasury.
A Treasury Management System supports the recording, valuation and monitoring of effectiveness and maturities, while providing a rapid overview of the current situation. Valuation requires access to current market data, which can be obtained through an automated feed from providers such as Infront, Refinitiv or Bloomberg, by importing foreign exchange rate files supplied by the bank via EBICS, or through manual entry where only a small number of currencies with limited risk are involved. The exchange rates stored in Trinity TMS are retained historically for retrospective analyses and can also be used by all other modules.
Dealer, currency and loss risk limits can be defined for trading activities. The more frequently a company needs to hedge against foreign exchange fluctuations, the more worthwhile it becomes to use an online trading platform. Based on the exposure planning, the treasurer can communicate the intended transaction to previously selected banks and immediately receive current pricing. At the click of a button, or based on predefined rules, the transaction is concluded with the selected counterparty, transferred to the “Foreign Exchange Management” module and confirmed through a subsequent automated matching process. For settlement with the bank, the number of chargeable settlement transactions can be minimised through integrated foreign exchange netting.
All cash flows arising from foreign exchange transactions are immediately reflected in liquidity planning and cash management without the need for duplicate data entry. Underlying transactions and hedging instruments can be assigned to one another in many-to-many relationships as valuation units, and their effectiveness can be reviewed. Both cash flows and valuations can also be transferred to financial accounting for automatic posting via the account assignment module.
