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Treasury and Payments

How to optimize FX risk and exposures with liquidity and multi-currency management

The world is going through a sustained period of volatility, uncertainty, complexity, and ambiguity. In such a challenging operating environment, effective liquidity and multi-currency management is more important than ever for companies to be able to access stable funding and optimize their costs.


 

Multinationals may have significant cash surpluses, but these are typically held across numerous national accounts, which obscures the overall position, hindering effective cash management and increasing overall FX transaction costs.

 

It is estimated that global multinationals tend to hold at least 30% liquidity in idle cash to cater for unforeseen funding needs or strategic redeployment. 1

J.P. Morgan Payments

We look at three powerful techniques that can be used together to optimize global liquidity management and we highlight the resulting cost benefits for treasury FX operations.

 

Automate and optimize funding with multi-currency notional pooling

Major currencies with significant flow and operating value that need active FX management are best complimented with notional pooling. Notional pooling allows companies to free-up idle cash balances without the explicit need for physical cash transfers or conversion. The pool is a real-time visibility ecosystem that creates a single liquidity position across multiple accounts. This is particularly advantageous for multi-currency management.

We examine how multi-currency notional pooling (MCNP) simplifies short-term cross-currency funding requirements and provides stability in both operating and funding costs. We also explain why overnight pooling significantly reduces the need for foreign exchange, further reducing costs; and see how a MCNP simplifies FX strategy by allowing treasury to focus more on longer tenor hedging needs.

 

Enhance cash extraction by optimizing intercompany position management

We then consider those currencies that may be best managed in their home location. These are typically the restricted currencies that require physical conversion. We explain the application of automated extraction tools to prevent the build-up of structural cash surpluses, eliminating the need for time-consuming manual management, regulation permitting. Any funding into a restricted market can be similarly automated.

Different jurisdictions may require different account structures and FX strategies to create this hybrid treasury solution. J.P. Morgan will work together with you on the best automated set-up to optimize both liquidity & multi-currency management across your markets.

 

Negative Yield
Optimization

Automated tools used for restricted currency extraction can also be applied to any fungible currency that attracts negative interest charges or zero rates, converting the exposure into a currency attracting positive interest income or that allows to v the company’s FX exposure.  We consider how this solution works across various balance sheet scenarios to complete a fully optimized treasury strategy.

 

Allow for scale and future-proof

By centralizing funds and using strategies such as multi-currency notional pooling, optimizing intercompany position management, and negative yield optimization, companies can release idle cash and optimize currency exposures.

 


For more information on how you can optimize your liquidity and
multi-currency strategies contact your J.P. Morgan representative.


1.Idle cash is the proportion of cash that is idle or restricted due to local capital buffers. Figure estimated using proprietary J.P. Morgan information.

 

 

© 2022 JPMorgan Chase & Co. Member FDIC. All rights reserved. The statements herein are confidential and proprietary and not intended to be legally binding. Not all products and services are available in all geographical areas. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice or investment recommendations.  Visit jpmorgan.com/disclosures/payments for further disclosures and disclaimers related to this content.

Cross-border Digital Innovation Liquidity Management