Photo of Helen Mason, ANZ, Stephen Lockley, Leon Tompkins, World Vision International and Daniel Hanna, Standard Chartered.

This active foreign exchange risk management programme demonstrates the direct benefits of extracting value from global currency trading on the world’s most impoverished populations.

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Currency trading can make a real difference to vulnerable children and communities

The challenge

Larger fundraising offices commit US dollar support to specific programmes in World Vision’s country field offices about nine months prior to the start of each fiscal year. Then, country field offices, which implement and oversee programming activities, agree to a US dollar value of total commitments approximately three months thereafter. WVI’s global treasury provides forecasted budget rates to both fundraising and country field offices to assist in these negotiations. But, unless forecasted accurately, their projects bear the risk of experiencing significant foreign exchange losses.

Ashwin Ramji, Global Assistant Treasurer explains: “Global treasury introduced a static hedging programme in 2007 based on US dollar budgets. This posed several challenges because specific programming spend is not finalised until at most two months prior to the start of each fiscal year. This means that in many exotic currencies, delaying currency purchases may generate foreign exchange gains at the expense of cash flow certainty. As a result, several larger country field offices were hesitant to work with global treasury. However, by not hedging, they were exposed to abnormal swings in currency rates without sufficient funds to manage them. So, we had to address this”.

The solution

Global treasury introduced the concept of cash flow forecasting to country field offices to improve visibility of actual cash flow, which can be highly volatile due to shortages in raw supplies or other challenges inherent with working with vulnerable communities.

With basic cash flow forecasting practice in place, global treasury, with the oversight of Leon Tompkins, Director, Global Financial Risk, introduced active foreign exchange management in 2016 whereby it layers hedges on a monthly basis. The country field offices are encouraged to update cash flow forecasts on a quarterly basis or more frequently for highly volatile currencies. Additionally, global treasury actively monitors a portfolio of stop-losses and forwards to capture potential foreign exchange gains while protecting budget rates.

Country field offices were excited to participate in the concept, and the results speak for themselves. In fiscal year 2016 (ended October 2016), global treasury’s active foreign exchange programme generated gains of US$57.1m, and through February 2017, US$19.1m, with a median gain per country field office of US$720,000.

Best practice and innovation

Global treasury carefully selects its banks based on multiple criteria, including pricing competitiveness, settlement capacity and counterparty risk.

Global treasury’s active foreign exchange risk management programme proves that effective financial management can truly benefit vulnerable communities. World Vision International’s decision to invest in a sophisticated foreign exchange risk management function resulted in more financial resources for programmes that directly contribute to the well-being of vulnerable children and communities.

Key benefits

• The active foreign exchange management programme has generated foreign exchange gains of US$57.1m in fiscal year 2016 (ended October 2016), and US$19.1m through February 2017.
• While gains are not guaranteed, global treasury’s ability to garner buy-in from country field offices means participation rates have increased and budgets are protected.
• World Vision’s active foreign exchange risk management programme demonstrates the direct and significant benefits of extracting value from global currency trading. In this case, it helped World Vision to make a real difference in the lives of the most vulnerable children and communities.