WHAT IS LIQUIDITY RISK?

Liquidity risk is the risk that financial commitments can’t be paid on their due dates. Managing liquidity risk requires forecasting cash flows; ensuring there are sufficient funds and/or financing facilities available to meet cash flow deficits; timing payments to coincide with receipts where possible; and maintaining an adequate surplus of liquid assets and/or committed financing facilities to cater for a liquidity crisis.

LIQUIDITY ISSUES

But problems happen – forecasts are inaccurate; covenants are breached resulting in the withdrawal of committed facilities, crises occur (forecast revenues can evaporate and/or forecast expenses can “blow out”), liquid assets cannot be liquefied as required. Corporate Treasurer’s maintain a liquidity buffer to allow for inaccurate forecasting and liquidity crises.

CLIENT ASSISTANCE

We assist clients through:

• Developing, reviewing and refining liquidity policies, buffers and procedures
• Developing and refining comprehensive cash flow forecasting models that consolidate multi-site and multi-currency forecasts
• Identifying and utilising “lazy cash”
• Developing and reviewing strategies to manage working capital, available cash and borrowing needs
• Assisting Internal Audit Departments in reviewing Liquidity Risk Management in the orgnisation

WHAT IS FX RISK?

Foreign exchange risk ("FX Risk") is the risk of loss due to movements in foreign exchange rates. The loss may impact profits and/or the balance sheet. FX Risk is generally considered to be either FX transaction risk (associated with import and export transactions) or FX translation risk (associated with the translation of assets and liabilities denominated in a foreign currency, into the reporting currency).

FX RATE MOVEMENTS

No one can reliably predict exchange rate movements (if they could – they’d be working for themselves and not sharing their forecasts with anyone). Exchange rates can be volatile. Organisations manage the potential volatility in their P&L and/or balance sheets by hedging their FX exposures using forward exchange contracts, foreign exchange options and borrowing and lending in foreign currencies.

CLIENT ASSISTANCE

We assist clients through:

• Developing, reviewing and refining FX risk management policies, procedures and systems
• Developing and reviewing FX risk management strategiess
• Assisting Internal Audit Departments in reviewing FX Risk Management in the organisation
• Developing and reviewing FX risk management benchmarks and performance measurement processes

WHAT IS INTEREST RATE RISK?

Interest rate risk ("IR Risk") is the risk of loss due to movements in interest rates. It is directly related to interest paid and received on borrowings and investments, and can be indirectly related to the price of assets and liabilities. IR Risk can seriously impact an organisation’s ability to comply with its borrowing covenants – particularly the interest coverage ratio.

INTEREST RATE MOVEMENTS

As with FX risk, no one can reliably predict interest rate movements. Therefore organisation’s manage their interest rate exposure through the use of interest rate swaps, forward rate agreements and interest rate options. Determining the time frame over which to manage IR risk can be problematic as can determining the optimum mix of fixed and floating interest rates.

CLIENT ASSISTANCE

We assist clients through:

• Developing, reviewing and refining IR risk management policies, procedures and systems
• Developing and reviewing IR risk management strategiess
• Assisting Internal Audit Departments in reviewing IR Risk Management in the organisation
• Developing and reviewing IR risk management benchmarks and performance measurement processes