For businesses considering or already operating in different currencies it is essential they maximise their trading environment with respect to foreign exchange. Getting a good rate is important, but there is far more to it than just driving a hard bargain with the bank. Lisa Francis, Managing Director, Barclays Risk Solutions Group EMEA and Gareth Noble, Managing Director, Barclays Risk Solutions Group FX are on hand to explain.

Lisa Francis, Managing Director, Head of FX Corporate Risk Solutions Group at Barclays, based in London. She is responsible for leading the firms FX risk offering to corporate clients across the region.

Francis has over 20 years experience in the Foreign Exchange markets, and joined Barclays from RBS where she held several positions, most recently as Head of European FX Sales and Global Head of FX Event-Driven Risk Management.

Gareth Noble, Managing Director Risk Solutions Group, Barclays Corporate and Investment Banking. Noble has worked in Foreign Exchange at Barclays for 14 years and currently has responsibility for Transaction Banking FX and FX e-Commerce for Corporates.

Globalisation is one of the most significant economic concepts ever and yet today most people take it almost for granted. We can walk into a supermarket and pick up fruit and other produce that a decade or so ago no one had even heard of. We buy German cars built in Brazil and clamour for tablet computers designed in California and assembled in China – all done entirely with little notice or ceremony.

Multinational corporates and financial institutions have been engaging in international trade for a very long time but with the aid of modern transport, communication and financing capabilities, it is even easier today for small companies, and even individuals, to expand into overseas markets buying and selling goods and services, from design to delivery and all points in between. Today’s global market place offers buyers and sellers of those goods and services, including labour, far greater choice than they would have had even a decade ago.

But choice in a market can also ratchet up the level of competition considerably between players, which in turn places far greater pressure on all stakeholders to be as efficient as possible, not just in terms of production but also with respect to their financial capabilities. All of which brings the importance of the international banking system and the services available to support international trade to the fore.

Setting up overseas

In the corporate space, one of the first considerations for a business seeking entry into a new country – depending to an extent on size, structure, line of business and geographic location – is how to maximise its trading environment and manage the associated risks with respect to foreign exchange (FX). One of the key functions of any business is payments and, where currency concerns arise, it is essential for that business to align its needs with where its costs are being driven from, says Lisa Francis, MD, Barclays Risk Solutions Group, EMEA.

A high street retailer, for example, will commonly source most of its goods from Asia and, based on currency drivers, payments models are changing. “In China, for example, we are seeing clients move from a tendency to pay in dollars to being able to pay in renminbi,” says Francis. “If they do, the buyer will most likely be taking an additional spread driven by the needs of its suppliers because of exchange rate movements; the buyer is closely aligning its needs to the underlying exposures of its suppliers and so in theory should be driving a harder bargain and facing less cost in terms of their own hedging requirements.”

In China, we are seeing clients move from a tendency to pay in dollars to being able to pay in renminbi.

Lisa Francis

In terms of repatriation of profits, there are considerations around tax, of course, but local regulations will impact upon what can and cannot be done (the concept of trapped cash can impact considerably upon the options available). In an initial company set-up of an overseas entity, financing for that process could either be funded via an inter-company loan or through equity. With an equity set-up, it can prove more difficult to get that cash out of certain jurisdictions. With a debt financing model, as the entity starts to generate profit, it can pay down that debt rather than trying to repatriate cash.

There are ways of tackling the movement of funds in and out of an overseas business but the most efficient model will clearly depend on the jurisdiction in which that entity is based. But there is a pressing need to efficiently manage FX exposure risk too. “Often a business will be so focused on how to get money out of the country and what the tax implications may be that hedging becomes a secondary aspect,” notes Gareth Noble, MD, Barclays Risk Solutions Group, FX. “If that is the case, whenever it does move money out, the business can end up facing whatever the market happens to be at the time, potentially losing out.”

For most trade finance deals, where two banks and their respective clients are involved, US dollar is the currency of choice and so there is not typically an FX element based in such deals. There are circumstances that will force a currency consideration that sits outside common currency pairings. “With any discussion about a business transaction that involves a currency outside of the currency of choice, Barclays sees itself as strategic partner and will help a client to think about the risks associated with that, whether cash, FX or interest rate,” says Francis. Whether ahead of time or as the exposure is identified or created, she adds that there will “inevitably be a variety of solutions that Barclays will guide its clients through when helping them mitigate those risks”.

With any discussion about a business transaction that involves a currency outside of the currency of choice, Barclays sees itself as strategic partner and will help a client to think about the risks associated with that, whether cash, FX or interest rate.

Lisa Francis

FX technology for all

From an FX technology standpoint, Francis argues the case for Barclays having “the best solution in the market”. With its BARX platform, she firmly believes most of its clients see it as a differentiator, offering “the best liquidity” for a sole bank provider. Through the BARX model, the bank has developed a wider product set, including its algorithmic FX trading tools, to help the highly competitive professional traders and sophisticated client businesses (typically major MNCs) execute very large flows in less liquid markets or where they wish to leave orders and have ultra-transparent fills.

In the world of automobile design, the latest developments in Formula One eventually trickle down to the consumer market, benefitting all. In the same way, at the mid- corporate level, Barclays’ dedicated e-commerce platform, BARX Corporate, leverages the look, feel and functionality of its institutional platform in a package that has been tailored to the less frenetic, but no less professional, needs of the wider corporate market.

The latter has a number of user-friendly features and functions such as flexible delivery forwards which enable the user to draw down on what is required when it is required, removing the need to manage a large book of FX trades. Also, it has the ability to link FX deals to payments so that whilst both platforms have real-time streaming FX rates, the mid-cap iteration allows secured rates to be linked to corporate payments, avoiding the need for a range of currency accounts. “Few banks can offer that facility, particularly online,” states Noble.

As they make individual sales and the transaction for each is processed, in real-time we can aggregate their positions and automate their hedging.

Gareth Noble

Barclays has also created a platform specifically for clients who process high volumes of low value transactions. Being able to price in multiple local currencies, and converting that price back to the home currency, is something most retailers would love to do but cannot always achieve without relying on credit card companies or other payment providers to offer the exchange service. For Barclays’ clients who wish to price in this way but who have no desire to manage all the different currencies, currency accounts and the attendant currency risk, an online solution awaits.

The platform, BARX NetFX, connects to the client’s own systems to automatically pull FX rates from Barclays and use them to price their goods or services in the local currency on their different websites. “As they make individual sales and the transaction for each is processed, in real-time we can aggregate their positions and automate their hedging,” explains Noble. The customer only sees the local price but the client as the seller can use either Barclays’ live rates with pre-agreed spreads or take the rate that was sent through to price on the website, either way addressing FX risk.

As part of the ongoing development of BARX NetFX, Barclays is pulling in the expertise of its card provider division, Barclaycard. For merchants using the latter for payment acceptance or card acquiring, it will be possible for them to not only offer pricing in different currencies but also, where they are already connected to Barclaycard, for card-acquiring, they will no longer need a separate connection for Barclays to manage their FX element.

Building businesses by building relationships

But it is not just a case of hitting the right button at the right time. It is no accident that Barclays knows what its clients want; it has a dedicated FX team whose role it is not just to build relationships with individual clients at all levels, but also to engage with the sectors and industries from which its clients are drawn. Understanding the needs of the industry sector more broadly and the individual businesses translate into “a very good client experience”, says Francis.

Establishing any business on foreign shores can be a challenge and Barclays’ offer of personal service means access to a cross-functional relationship team set up to look at all the local elements of trade in each jurisdiction. This might include support in navigating through relevant documentary, regulatory, legal and taxation points as part of the preparatory work. “It’s like having a local strategic partner that will help them through that stage,” says Francis. FX is an important element of any international trade but the assistance with documentation and administrative processes that can enable a business to function in a coherent way once up and running will, she adds, often hold sway over any rate. “If a client wishes to do business in any country with which they are less familiar, we are able to help walk them through that process either directly or, where we don’t have a cash management presence, through one of our local agents.”

But the need for clients is dynamic; as the business grows and evolves its needs will change. In this respect Barclays has consciously adopted a consultative approach, explains Noble. There is, he adds, no one-size-fits-all offering for a situation that has so many variables. Barclays works hard to understand its clients, including how their business is structured, what the ambitions are and where it is in the cycle of business evolution. Through its product and relationship experts, the bank then looks to deliver a holistic, bespoke solution that helps their clients achieve their ambitions.

Barclays

Barclays moves, lends, invests and protects money for customers and clients worldwide. With over 300 years of history and expertise in banking, we operate in over 50 countries and employ over 140,000 people.

We provide corporate banking solutions to businesses with an annual turnover of more than £5m in the UK, and to large local companies, financial institutions and multinationals in non-UK markets. We support the success and growth of our clients by providing lending, risk management, cash and liquidity management, trade finance, and asset and sales financing.

Our customers and clients benefit from access to the breadth of expertise across Barclays. We’re one of the largest financial services providers in the world, engaged in retail banking, credit cards, corporate and investment banking, and wealth management.