WEBVTT 00:00:00.000 --> 00:00:09.162 align:middle line:90% 00:00:09.162 --> 00:00:10.370 align:middle line:90% EMILY: Thank you for joining. 00:00:10.370 --> 00:00:12.300 align:middle line:90% This call is being recorded. 00:00:12.300 --> 00:00:13.940 align:middle line:84% If you object to the recording, please 00:00:13.940 --> 00:00:15.590 align:middle line:90% disconnect from the line. 00:00:15.590 --> 00:00:19.130 align:middle line:84% The recording will be shared within the next few days. 00:00:19.130 --> 00:00:23.135 align:middle line:84% With that, I'll turn it over to our host, Mary. 00:00:23.135 --> 00:00:25.830 align:middle line:84% MARY HENEHAN: Thank you, Emily, and good afternoon, everybody. 00:00:25.830 --> 00:00:29.000 align:middle line:84% Good morning to those of you joining us from the West Coast. 00:00:29.000 --> 00:00:30.080 align:middle line:90% I'm Mary Henehan. 00:00:30.080 --> 00:00:32.420 align:middle line:84% I'm the co-head of foreign exchange sales here 00:00:32.420 --> 00:00:36.188 align:middle line:84% at U.S. Bank and will be the moderator for today's session. 00:00:36.188 --> 00:00:38.480 align:middle line:84% Today, we're discussing topics related to currency risk 00:00:38.480 --> 00:00:41.420 align:middle line:84% management, which can be of particular interest 00:00:41.420 --> 00:00:44.900 align:middle line:84% to both public and private companies that are already 00:00:44.900 --> 00:00:47.840 align:middle line:84% global or companies expanding to include 00:00:47.840 --> 00:00:51.200 align:middle line:84% foreign sales, expenses, or equity investments, 00:00:51.200 --> 00:00:54.020 align:middle line:84% and certainly, companies who have historically 00:00:54.020 --> 00:00:57.140 align:middle line:84% been U.S. dollar-centric in terms of their import 00:00:57.140 --> 00:00:59.700 align:middle line:90% and export activities. 00:00:59.700 --> 00:01:02.040 align:middle line:84% Strength of the U.S. dollar has driven 00:01:02.040 --> 00:01:08.500 align:middle line:84% so many foreign currencies to historic or even all-time lows, 00:01:08.500 --> 00:01:10.210 align:middle line:84% as is the case with the British pound 00:01:10.210 --> 00:01:15.050 align:middle line:84% today, which may well reach parity here in the near future. 00:01:15.050 --> 00:01:17.200 align:middle line:84% I think some of you may be joining 00:01:17.200 --> 00:01:18.910 align:middle line:84% after reading our article titled, 00:01:18.910 --> 00:01:21.430 align:middle line:84% "Addressing Financial Uncertainty in International 00:01:21.430 --> 00:01:22.570 align:middle line:90% Business." 00:01:22.570 --> 00:01:25.240 align:middle line:84% If you have interest in that article, haven't seen it yet 00:01:25.240 --> 00:01:28.900 align:middle line:84% or other FX information, feel free to reach out 00:01:28.900 --> 00:01:30.640 align:middle line:84% to your FX partner here at U.S. Bank 00:01:30.640 --> 00:01:31.870 align:middle line:90% or your relationship manager. 00:01:31.870 --> 00:01:34.540 align:middle line:84% And you can also reach out to Paula Cummings or me. 00:01:34.540 --> 00:01:36.160 align:middle line:84% We'll be happy to share the article 00:01:36.160 --> 00:01:38.930 align:middle line:84% or any other information with you. 00:01:38.930 --> 00:01:42.760 align:middle line:84% We'll plan to take today's conversation to a deeper level 00:01:42.760 --> 00:01:44.770 align:middle line:84% with two hedge accounting sessions, which 00:01:44.770 --> 00:01:45.970 align:middle line:90% will be held in November. 00:01:45.970 --> 00:01:47.800 align:middle line:84% And I'll share details of those events 00:01:47.800 --> 00:01:50.700 align:middle line:90% at the close of today's call. 00:01:50.700 --> 00:01:54.450 align:middle line:84% I've talked really briefly about market conditions. 00:01:54.450 --> 00:01:57.450 align:middle line:84% While today's session isn't a market update call, 00:01:57.450 --> 00:01:59.550 align:middle line:84% current conditions have caused so many companies 00:01:59.550 --> 00:02:03.450 align:middle line:84% to review their hedging policies or to restructure 00:02:03.450 --> 00:02:05.550 align:middle line:84% their outstanding hedge portfolios, 00:02:05.550 --> 00:02:09.900 align:middle line:84% and certainly, to consider more intently the currency that they 00:02:09.900 --> 00:02:12.500 align:middle line:90% make or receive payments in. 00:02:12.500 --> 00:02:15.380 align:middle line:84% Event risk has been so extreme and not just today. 00:02:15.380 --> 00:02:18.890 align:middle line:84% It's been extreme for the past 2 and 1/2 years. 00:02:18.890 --> 00:02:22.280 align:middle line:84% Pandemic impacts have created uncertainty of cash flows, 00:02:22.280 --> 00:02:24.740 align:middle line:84% as supply chain disruptions have been 00:02:24.740 --> 00:02:27.530 align:middle line:90% so widespread and prolonged. 00:02:27.530 --> 00:02:30.200 align:middle line:84% And geopolitical tension has created uncertainty 00:02:30.200 --> 00:02:34.250 align:middle line:84% across a spectrum of asset classes, including FX. 00:02:34.250 --> 00:02:38.822 align:middle line:84% And the U.S. Dollar has benefited enormously from that. 00:02:38.822 --> 00:02:40.280 align:middle line:84% In addition, the war in the Ukraine 00:02:40.280 --> 00:02:43.220 align:middle line:84% has sparked an energy crisis, currently hitting 00:02:43.220 --> 00:02:45.560 align:middle line:90% European nations very hard. 00:02:45.560 --> 00:02:49.430 align:middle line:84% And inflation, obviously, has become a critical concern 00:02:49.430 --> 00:02:52.730 align:middle line:84% and has been followed by monetary policy considerations 00:02:52.730 --> 00:02:54.500 align:middle line:84% and the higher interest rate environment 00:02:54.500 --> 00:02:56.750 align:middle line:90% we're now experiencing. 00:02:56.750 --> 00:02:59.930 align:middle line:84% And last, I think implied FX volatilities have pushed higher 00:02:59.930 --> 00:03:02.490 align:middle line:90% against all of this uncertainty. 00:03:02.490 --> 00:03:06.350 align:middle line:84% So market conditions have created a threat to operating 00:03:06.350 --> 00:03:09.110 align:middle line:90% results but have also created-- 00:03:09.110 --> 00:03:13.100 align:middle line:84% presented unprecedented hedging opportunities and currency 00:03:13.100 --> 00:03:13.910 align:middle line:90% considerations. 00:03:13.910 --> 00:03:16.280 align:middle line:84% And today, we're going to talk about the factors that 00:03:16.280 --> 00:03:19.430 align:middle line:84% are most important in contending with currency 00:03:19.430 --> 00:03:23.120 align:middle line:84% risk in an unpredictable marketplace. 00:03:23.120 --> 00:03:24.590 align:middle line:84% So before we jump into that, I want 00:03:24.590 --> 00:03:27.770 align:middle line:84% to introduce our speakers today, Paula Comings and Ramon 00:03:27.770 --> 00:03:29.120 align:middle line:90% Espinosa. 00:03:29.120 --> 00:03:32.330 align:middle line:84% Paula and I are the co-heads of U.S. Bank's foreign exchange 00:03:32.330 --> 00:03:33.350 align:middle line:90% sales team. 00:03:33.350 --> 00:03:36.560 align:middle line:84% Our team provides risk management 00:03:36.560 --> 00:03:39.350 align:middle line:84% and international payment support to U.S. Bank 00:03:39.350 --> 00:03:43.580 align:middle line:84% clients within the corporate and commercial banking, consumer 00:03:43.580 --> 00:03:46.280 align:middle line:84% business banking and wealth management and investment 00:03:46.280 --> 00:03:47.840 align:middle line:90% services segments. 00:03:47.840 --> 00:03:50.480 align:middle line:84% And Ramon Espinosa has been a partner to our team 00:03:50.480 --> 00:03:51.500 align:middle line:90% for some time. 00:03:51.500 --> 00:03:54.290 align:middle line:84% He has a great deal of experience in managing FX risk 00:03:54.290 --> 00:03:55.790 align:middle line:90% also. 00:03:55.790 --> 00:03:59.600 align:middle line:84% Ramon holds a PhD in economics from Princeton University, 00:03:59.600 --> 00:04:01.850 align:middle line:84% has been an assistant professor of economics 00:04:01.850 --> 00:04:03.650 align:middle line:90% at Boston University. 00:04:03.650 --> 00:04:06.020 align:middle line:84% He's also been a research economist at the Federal 00:04:06.020 --> 00:04:08.690 align:middle line:84% Reserve Bank in New York and has held the positions 00:04:08.690 --> 00:04:12.890 align:middle line:84% of head of quantitative research and the economist and FX 00:04:12.890 --> 00:04:15.800 align:middle line:84% strategist at other banking firms in the U.S. 00:04:15.800 --> 00:04:19.399 align:middle line:84% So welcome to both our speakers here today. 00:04:19.399 --> 00:04:22.160 align:middle line:84% Paula, I'm going to lead off our conversation today and pose 00:04:22.160 --> 00:04:24.390 align:middle line:90% the first question to you. 00:04:24.390 --> 00:04:26.960 align:middle line:84% I'd like to start off by defining 00:04:26.960 --> 00:04:31.190 align:middle line:84% the sources of currency risk that companies are facing today 00:04:31.190 --> 00:04:33.620 align:middle line:84% when doing business outside the United States. 00:04:33.620 --> 00:04:35.990 align:middle line:84% And I'm hoping you can spend a few minutes talking 00:04:35.990 --> 00:04:40.550 align:middle line:84% about the sources of currency risk. 00:04:40.550 --> 00:04:42.820 align:middle line:84% PAULA COMINGS: Sure, Mary, and hello, everyone. 00:04:42.820 --> 00:04:45.620 align:middle line:84% I will try to give the answer a shot here. 00:04:45.620 --> 00:04:49.390 align:middle line:84% So broadly speaking, there are five different sources 00:04:49.390 --> 00:04:50.860 align:middle line:90% of currency risk to consider. 00:04:50.860 --> 00:04:53.080 align:middle line:84% But they're all inextricably linked 00:04:53.080 --> 00:04:55.870 align:middle line:84% by virtue of how each impacts the income statement 00:04:55.870 --> 00:04:57.340 align:middle line:90% and the balance sheet. 00:04:57.340 --> 00:05:01.420 align:middle line:84% These all occur when there is a currency mismatch between that 00:05:01.420 --> 00:05:03.580 align:middle line:84% of the underlying exposure and that 00:05:03.580 --> 00:05:05.050 align:middle line:90% of the financial statement. 00:05:05.050 --> 00:05:07.870 align:middle line:84% It will be recorded on or consolidated into. 00:05:07.870 --> 00:05:10.130 align:middle line:90% So what are those risks? 00:05:10.130 --> 00:05:12.940 align:middle line:84% The first is risk from forecasted transactions 00:05:12.940 --> 00:05:15.670 align:middle line:84% that could ultimately be recorded as revenue or expense 00:05:15.670 --> 00:05:19.400 align:middle line:84% on an income statement that is a different functional currency. 00:05:19.400 --> 00:05:22.810 align:middle line:84% So for example, there's a U.S. functional soda company 00:05:22.810 --> 00:05:26.350 align:middle line:84% that is selling soda in Europe and receiving euro revenues. 00:05:26.350 --> 00:05:29.020 align:middle line:84% If the euro gets stronger, the dollar equivalent value 00:05:29.020 --> 00:05:31.160 align:middle line:90% of those soda sales goes higher. 00:05:31.160 --> 00:05:34.090 align:middle line:84% But if the euro gets weaker, as it has this year, 00:05:34.090 --> 00:05:37.840 align:middle line:84% the dollar equivalent value of those sodas get lower. 00:05:37.840 --> 00:05:40.930 align:middle line:84% The second risk is balance sheet remeasurement risk, 00:05:40.930 --> 00:05:43.840 align:middle line:84% and that occurs when foreign denominated items, 00:05:43.840 --> 00:05:46.510 align:middle line:84% such as accounts payable, receivable-- 00:05:46.510 --> 00:05:48.820 align:middle line:84% I should say items on a balance sheet-- 00:05:48.820 --> 00:05:53.080 align:middle line:84% are recorded, say, if they're foreign on a, for instance, 00:05:53.080 --> 00:05:55.040 align:middle line:90% dollar functional balance sheet. 00:05:55.040 --> 00:05:58.330 align:middle line:84% So taking my earlier example, those sales 00:05:58.330 --> 00:06:01.660 align:middle line:84% of euro denominated sodas, when recorded [INAUDIBLE] 00:06:01.660 --> 00:06:04.270 align:middle line:84% accounts receivable items on a dollar functional balance 00:06:04.270 --> 00:06:06.170 align:middle line:90% sheet of the U.S. soda company. 00:06:06.170 --> 00:06:07.990 align:middle line:84% And so once they're recorded, they'll 00:06:07.990 --> 00:06:10.150 align:middle line:84% be remeasured at the FX spot rate 00:06:10.150 --> 00:06:11.870 align:middle line:90% on a monthly or quarterly basis. 00:06:11.870 --> 00:06:14.890 align:middle line:84% So a change in the exchange rate can make those AR worth 00:06:14.890 --> 00:06:17.500 align:middle line:84% more or less, depending on the currency right. 00:06:17.500 --> 00:06:19.415 align:middle line:84% And one point worth mentioning is 00:06:19.415 --> 00:06:21.790 align:middle line:84% that balance sheet remeasurement is by and large the most 00:06:21.790 --> 00:06:24.220 align:middle line:90% commonly hedged FX risk we see. 00:06:24.220 --> 00:06:27.010 align:middle line:84% And we think that's just because, given 00:06:27.010 --> 00:06:29.230 align:middle line:84% the certainty of the exposure and the understanding 00:06:29.230 --> 00:06:32.050 align:middle line:84% of remeasurement volatility that could impact the P&L, 00:06:32.050 --> 00:06:34.930 align:middle line:84% it's one that corporate treasuries tend to get most 00:06:34.930 --> 00:06:36.980 align:middle line:90% comfortable with most quickly. 00:06:36.980 --> 00:06:40.360 align:middle line:84% So the third type of risk is earnings translation risk, 00:06:40.360 --> 00:06:43.810 align:middle line:84% and that occurs when an entity, like a foreign subsidiary, 00:06:43.810 --> 00:06:47.360 align:middle line:84% has a different functional currency than its parent. 00:06:47.360 --> 00:06:50.470 align:middle line:90% So back to the soda company. 00:06:50.470 --> 00:06:53.230 align:middle line:84% Let's say it sells soda in Europe 00:06:53.230 --> 00:06:55.370 align:middle line:84% but out of a euro functional subsidiary. 00:06:55.370 --> 00:06:58.090 align:middle line:84% So in that case, the euro functional income statement 00:06:58.090 --> 00:07:01.370 align:middle line:84% item, revenue in euros in this case, 00:07:01.370 --> 00:07:03.820 align:middle line:84% needs to be translated back to the functional 00:07:03.820 --> 00:07:07.360 align:middle line:84% currency of the parent, U.S. dollar, upon consolidation. 00:07:07.360 --> 00:07:10.000 align:middle line:84% And if that occurs, when the euro declines, 00:07:10.000 --> 00:07:14.680 align:middle line:84% such as this year, there could be a hit to consolidated EPS. 00:07:14.680 --> 00:07:16.150 align:middle line:90% So there's two more risks. 00:07:16.150 --> 00:07:17.230 align:middle line:90% Bear with me. 00:07:17.230 --> 00:07:18.670 align:middle line:90% I'll try to go quickly. 00:07:18.670 --> 00:07:20.920 align:middle line:84% Net investment risk, which occurs 00:07:20.920 --> 00:07:24.460 align:middle line:84% when a company has equity in a foreign subsidiary, i.e. 00:07:24.460 --> 00:07:26.680 align:middle line:84% the soda company has an equity investment 00:07:26.680 --> 00:07:29.620 align:middle line:84% in a foreign subsidiary, say in their euro sub. 00:07:29.620 --> 00:07:32.180 align:middle line:84% And without hedging, there could be impact 00:07:32.180 --> 00:07:34.810 align:middle line:84% to the dollar equivalent value of that foreign equity 00:07:34.810 --> 00:07:36.340 align:middle line:90% as well as to cash. 00:07:36.340 --> 00:07:39.820 align:middle line:84% And then finally, there is a less frequent risk, which 00:07:39.820 --> 00:07:42.520 align:middle line:90% is event risk, more one-off. 00:07:42.520 --> 00:07:44.920 align:middle line:84% One example of this would be hedging the acquisition 00:07:44.920 --> 00:07:45.980 align:middle line:90% of a foreign company. 00:07:45.980 --> 00:07:48.970 align:middle line:84% So if this U.S. dollar functional 00:07:48.970 --> 00:07:52.420 align:middle line:84% based soda company is using U.S. dollars to purchase 00:07:52.420 --> 00:07:55.840 align:middle line:84% a rival Mexican soda company and the transaction is priced 00:07:55.840 --> 00:07:59.500 align:middle line:84% in peso, in the simplest of terms, because this could 00:07:59.500 --> 00:08:02.830 align:middle line:84% be nuanced and probably left for a different discussion, 00:08:02.830 --> 00:08:05.920 align:middle line:84% without hedging, upon closing, the deal 00:08:05.920 --> 00:08:09.490 align:middle line:84% may require more U.S. dollars to purchase peso 00:08:09.490 --> 00:08:13.060 align:middle line:84% if the dollar weakens and the peso strengthens. 00:08:13.060 --> 00:08:17.620 align:middle line:84% So Mary, just before I wrap, what I'll leave it with is that 00:08:17.620 --> 00:08:20.950 align:middle line:84% I haven't mentioned that some of these risks can be hedged 00:08:20.950 --> 00:08:23.740 align:middle line:84% without risking additional volatility to cash flows 00:08:23.740 --> 00:08:26.000 align:middle line:90% or earnings, and others cannot. 00:08:26.000 --> 00:08:28.190 align:middle line:84% And that's based on the accounting treatment. 00:08:28.190 --> 00:08:31.090 align:middle line:84% And this is within the purview of the Financial Accounting 00:08:31.090 --> 00:08:32.380 align:middle line:90% and Standards Board a.k.a. 00:08:32.380 --> 00:08:33.100 align:middle line:90% FASB. 00:08:33.100 --> 00:08:37.179 align:middle line:84% So simply put, hedging a balance sheet remeasurement 00:08:37.179 --> 00:08:40.090 align:middle line:84% risk of an underlying exposure would not 00:08:40.090 --> 00:08:42.970 align:middle line:84% require hedge accounting or deferral accounting treatment. 00:08:42.970 --> 00:08:45.880 align:middle line:84% Whereas the hedging of forecasted cash flows, 00:08:45.880 --> 00:08:48.130 align:middle line:84% since they're not recorded anywhere yet-- 00:08:48.130 --> 00:08:50.140 align:middle line:90% or net investment-- may. 00:08:50.140 --> 00:08:52.670 align:middle line:84% And so we can talk about this longer. 00:08:52.670 --> 00:08:54.580 align:middle line:84% But as Mary mentioned, we do have 00:08:54.580 --> 00:08:56.980 align:middle line:84% a couple of hedge accounting webinars coming up 00:08:56.980 --> 00:08:58.420 align:middle line:84% with our partner Derivative Path. 00:08:58.420 --> 00:09:02.200 align:middle line:84% So during those, you can kind of put on your green accountant's 00:09:02.200 --> 00:09:05.150 align:middle line:84% visor and your sleeve garters and really get into the weeds. 00:09:05.150 --> 00:09:09.010 align:middle line:84% But I think I'll pause there and, Mary, hopefully that 00:09:09.010 --> 00:09:12.645 align:middle line:84% gives you a very broad and detailed answer. 00:09:12.645 --> 00:09:14.770 align:middle line:84% MARY HENEHAN: Thanks, Paula, and I appreciate that. 00:09:14.770 --> 00:09:18.850 align:middle line:84% And I think understanding the sources of risk 00:09:18.850 --> 00:09:21.910 align:middle line:84% that companies are contending with is such a critical factor. 00:09:21.910 --> 00:09:24.460 align:middle line:84% And Ramon, now that we've established 00:09:24.460 --> 00:09:26.500 align:middle line:90% the basis for understanding-- 00:09:26.500 --> 00:09:29.440 align:middle line:84% [COUGH] excuse me-- the sources of risk, 00:09:29.440 --> 00:09:34.220 align:middle line:84% can you talk a little bit about how companies 00:09:34.220 --> 00:09:37.760 align:middle line:84% can most effectively identify, measure, and quantify 00:09:37.760 --> 00:09:40.030 align:middle line:90% their risk? 00:09:40.030 --> 00:09:43.380 align:middle line:84% RAMON ESPINOSA: Sure, happy to do so, and Mary, 00:09:43.380 --> 00:09:47.470 align:middle line:84% this is a great, great question and I think an important one, 00:09:47.470 --> 00:09:50.470 align:middle line:84% especially in the current environment. 00:09:50.470 --> 00:09:53.940 align:middle line:84% The first step, naturally, is to gather accurate and complete 00:09:53.940 --> 00:09:56.430 align:middle line:90% exposure data. 00:09:56.430 --> 00:09:58.910 align:middle line:84% While this is, I think, an obvious step, 00:09:58.910 --> 00:10:02.520 align:middle line:84% it often is the most difficult step in the entire risk 00:10:02.520 --> 00:10:04.470 align:middle line:90% management process. 00:10:04.470 --> 00:10:09.270 align:middle line:84% But I would argue that keys to doing it effectively include 00:10:09.270 --> 00:10:14.070 align:middle line:84% excellent communication between treasury, FP&A, and business 00:10:14.070 --> 00:10:17.760 align:middle line:84% units, to ensure timely exchanges of information 00:10:17.760 --> 00:10:21.270 align:middle line:84% about balance sheet positions, those balance sheet exposures 00:10:21.270 --> 00:10:24.060 align:middle line:84% that Paula mentioned, as well as the preparation 00:10:24.060 --> 00:10:26.730 align:middle line:84% of accurate forecasts, both of the balance 00:10:26.730 --> 00:10:28.470 align:middle line:84% sheet positions and their changes, 00:10:28.470 --> 00:10:32.340 align:middle line:84% as well as forecasted revenues and expenses, future revenues 00:10:32.340 --> 00:10:33.630 align:middle line:90% and expenses. 00:10:33.630 --> 00:10:36.570 align:middle line:84% It's critical to have accurate forecasts. 00:10:36.570 --> 00:10:39.510 align:middle line:84% And in today's volatile and uncertain business environment, 00:10:39.510 --> 00:10:43.350 align:middle line:84% it's especially important that business units and FP&A 00:10:43.350 --> 00:10:48.090 align:middle line:84% understand their critical roles in effective risk management. 00:10:48.090 --> 00:10:49.890 align:middle line:84% The use of technology and analytics 00:10:49.890 --> 00:10:54.000 align:middle line:84% is also important in terms of gathering, compiling 00:10:54.000 --> 00:10:57.000 align:middle line:84% information, technology to collect and archive 00:10:57.000 --> 00:11:01.020 align:middle line:84% data from entities and systems across the firm, 00:11:01.020 --> 00:11:05.580 align:middle line:84% analytics to compile granular data into useful summaries 00:11:05.580 --> 00:11:09.630 align:middle line:84% of exposures, and to identify trends perhaps in exposures 00:11:09.630 --> 00:11:13.230 align:middle line:84% and in [? forecasters ?] on a firm wide basis that may not 00:11:13.230 --> 00:11:15.780 align:middle line:84% be apparent to individual business units that 00:11:15.780 --> 00:11:18.930 align:middle line:84% are involved in preparing forecasts. 00:11:18.930 --> 00:11:21.360 align:middle line:84% Once the exposure data is collected, 00:11:21.360 --> 00:11:23.350 align:middle line:84% then the second important step, I think, 00:11:23.350 --> 00:11:26.700 align:middle line:84% is to quantify the risks that the exposures present 00:11:26.700 --> 00:11:29.040 align:middle line:90% to key performance measures. 00:11:29.040 --> 00:11:30.370 align:middle line:90% It might be cash. 00:11:30.370 --> 00:11:31.770 align:middle line:90% It might be operating income. 00:11:31.770 --> 00:11:34.200 align:middle line:84% It might be net income or some other measure 00:11:34.200 --> 00:11:38.440 align:middle line:84% that is an important priority to key stakeholders. 00:11:38.440 --> 00:11:40.770 align:middle line:84% But this is important, because it allows the firm 00:11:40.770 --> 00:11:44.790 align:middle line:84% to assess the materiality of and its tolerance for risks, 00:11:44.790 --> 00:11:47.400 align:middle line:84% to establish risk management goals, 00:11:47.400 --> 00:11:50.490 align:middle line:84% and even to identify possible hedging strategies. 00:11:50.490 --> 00:11:53.820 align:middle line:84% And in this step, analytics, I think, 00:11:53.820 --> 00:11:56.460 align:middle line:90% has an important role to play. 00:11:56.460 --> 00:12:00.760 align:middle line:84% Techniques such as value at risk and scenario analysis, 00:12:00.760 --> 00:12:03.030 align:middle line:84% which in their own ways use information 00:12:03.030 --> 00:12:06.480 align:middle line:84% about the sizes of exposures, currency volatilities 00:12:06.480 --> 00:12:09.180 align:middle line:84% and correlations, to generate estimates 00:12:09.180 --> 00:12:11.850 align:middle line:84% of the size and location of the range 00:12:11.850 --> 00:12:14.010 align:middle line:90% and distribution of outcomes. 00:12:14.010 --> 00:12:16.200 align:middle line:90% They can be very useful tools. 00:12:16.200 --> 00:12:17.820 align:middle line:84% And the techniques are especially 00:12:17.820 --> 00:12:20.880 align:middle line:84% helpful if a company's balance sheet or cash flow program 00:12:20.880 --> 00:12:24.990 align:middle line:84% involves selective hedging, where some exposures are 00:12:24.990 --> 00:12:27.120 align:middle line:84% covered and others are not, as it's 00:12:27.120 --> 00:12:30.030 align:middle line:84% important to identify which positions 00:12:30.030 --> 00:12:33.790 align:middle line:84% require hedging to mitigate risk most effectively. 00:12:33.790 --> 00:12:36.600 align:middle line:84% But if you use these tools and techniques, 00:12:36.600 --> 00:12:39.870 align:middle line:84% please remember that value at risk and scenario analysis 00:12:39.870 --> 00:12:41.610 align:middle line:90% are just tools. 00:12:41.610 --> 00:12:44.310 align:middle line:84% They provide benchmark estimates of risk 00:12:44.310 --> 00:12:47.580 align:middle line:84% at designated confidence levels based 00:12:47.580 --> 00:12:50.490 align:middle line:84% on assumed or historical currency volatilities 00:12:50.490 --> 00:12:52.020 align:middle line:90% and correlations. 00:12:52.020 --> 00:12:53.730 align:middle line:84% But they do not provide estimates 00:12:53.730 --> 00:12:55.470 align:middle line:90% of worst case outcomes. 00:12:55.470 --> 00:12:58.740 align:middle line:84% And to the extent that time and resources allow, 00:12:58.740 --> 00:13:00.480 align:middle line:84% it's always good practice to stress 00:13:00.480 --> 00:13:03.540 align:middle line:84% test the results that might be yielded by the use of some 00:13:03.540 --> 00:13:05.530 align:middle line:90% of those other techniques. 00:13:05.530 --> 00:13:09.250 align:middle line:84% And finally, if you find yourself resource constrained, 00:13:09.250 --> 00:13:11.310 align:middle line:84% which small or early stage companies may 00:13:11.310 --> 00:13:14.310 align:middle line:84% be, be sure to leverage your relationship partners, 00:13:14.310 --> 00:13:17.880 align:middle line:84% your FX coverage folks, your public accountant, as they 00:13:17.880 --> 00:13:19.410 align:middle line:84% should be able to provide assistance 00:13:19.410 --> 00:13:22.110 align:middle line:84% in summarizing exposures and measuring risks. 00:13:22.110 --> 00:13:32.250 align:middle line:90% 00:13:32.250 --> 00:13:34.430 align:middle line:84% PAULA COMINGS: Oh, I think Mary's on mute. 00:13:34.430 --> 00:13:36.163 align:middle line:90% RAMON ESPINOSA: Yeah. 00:13:36.163 --> 00:13:37.080 align:middle line:90% PAULA COMINGS: Whoops. 00:13:37.080 --> 00:13:41.043 align:middle line:90% 00:13:41.043 --> 00:13:42.460 align:middle line:84% MARY HENEHAN: Can you hear me now? 00:13:42.460 --> 00:13:43.110 align:middle line:90% PAULA COMINGS: Yes. 00:13:43.110 --> 00:13:43.943 align:middle line:90% MARY HENEHAN: Sorry. 00:13:43.943 --> 00:13:45.210 align:middle line:90% Sorry, everybody. 00:13:45.210 --> 00:13:47.940 align:middle line:84% But Ramon, thank you for that, and especially 00:13:47.940 --> 00:13:50.550 align:middle line:84% for the mention of leveraging your partners, whether they 00:13:50.550 --> 00:13:56.400 align:middle line:84% be your FX partners, your accounting partners, all very 00:13:56.400 --> 00:13:59.820 align:middle line:84% critical in terms of getting to the right place 00:13:59.820 --> 00:14:02.850 align:middle line:84% when you're considering what you're measuring 00:14:02.850 --> 00:14:05.160 align:middle line:84% and what your exposures really are. 00:14:05.160 --> 00:14:10.630 align:middle line:84% So Paula, I think, really great conversation 00:14:10.630 --> 00:14:15.310 align:middle line:84% about the identification of risk and those considerations. 00:14:15.310 --> 00:14:19.540 align:middle line:84% Can you talk for a little bit about companies 00:14:19.540 --> 00:14:21.820 align:middle line:90% that are hedging FX exposure. 00:14:21.820 --> 00:14:23.860 align:middle line:84% I think, I have a couple of questions for you 00:14:23.860 --> 00:14:25.090 align:middle line:90% here probably. 00:14:25.090 --> 00:14:27.640 align:middle line:84% Those that are hedging effects exposure, 00:14:27.640 --> 00:14:29.710 align:middle line:84% do they have a formal policy in place 00:14:29.710 --> 00:14:33.280 align:middle line:84% that addresses why they hedge, or maybe why 00:14:33.280 --> 00:14:35.590 align:middle line:84% they ought not to hedge, or what they're hedging? 00:14:35.590 --> 00:14:39.813 align:middle line:84% And a follow on to that would be, do they have-- 00:14:39.813 --> 00:14:41.230 align:middle line:84% if they have that policy in place, 00:14:41.230 --> 00:14:43.450 align:middle line:84% what are the key covenants in that policy, 00:14:43.450 --> 00:14:46.987 align:middle line:84% the key goals in that policy that they're trying to achieve? 00:14:46.987 --> 00:14:47.820 align:middle line:90% PAULA COMINGS: Sure. 00:14:47.820 --> 00:14:50.130 align:middle line:84% So I'll take a stab at the first one, 00:14:50.130 --> 00:14:53.280 align:middle line:84% and I will say, with respect to, do companies 00:14:53.280 --> 00:14:56.340 align:middle line:84% have hedging [? policies? ?] I will say, yes. 00:14:56.340 --> 00:14:59.760 align:middle line:84% Typically when a company considers or starts 00:14:59.760 --> 00:15:02.970 align:middle line:84% considering hedging one or more of the five sources of risk, 00:15:02.970 --> 00:15:05.310 align:middle line:84% they'll start putting together a hedging policy. 00:15:05.310 --> 00:15:09.480 align:middle line:84% And the policy would typically have overarching goals 00:15:09.480 --> 00:15:11.040 align:middle line:90% or listed objectives. 00:15:11.040 --> 00:15:14.130 align:middle line:84% And it's probably going to be similar for all companies. 00:15:14.130 --> 00:15:15.420 align:middle line:90% Right? 00:15:15.420 --> 00:15:17.700 align:middle line:84% They want to reduce earnings volatility, 00:15:17.700 --> 00:15:20.460 align:middle line:84% or they want to protect the value of future cash flows 00:15:20.460 --> 00:15:21.633 align:middle line:90% or of asset values. 00:15:21.633 --> 00:15:23.550 align:middle line:84% So that would kind of be the mission statement 00:15:23.550 --> 00:15:25.050 align:middle line:90% of the policy. 00:15:25.050 --> 00:15:28.530 align:middle line:84% But goals or objectives aside, the policy 00:15:28.530 --> 00:15:31.920 align:middle line:84% would also likely serve to assign responsibilities 00:15:31.920 --> 00:15:35.790 align:middle line:84% or roles and responsibilities for development and maintenance 00:15:35.790 --> 00:15:36.990 align:middle line:90% of the processes. 00:15:36.990 --> 00:15:39.000 align:middle line:90% And that would be to ensure-- 00:15:39.000 --> 00:15:40.950 align:middle line:84% and Ramon spoke a little bit to this earlier-- 00:15:40.950 --> 00:15:44.640 align:middle line:84% the timely sharing of complete exposure information, 00:15:44.640 --> 00:15:48.390 align:middle line:84% the preparation of accurate forecasts and dissemination 00:15:48.390 --> 00:15:52.200 align:middle line:84% thereof, the periodic measurement of risks, 00:15:52.200 --> 00:15:55.710 align:middle line:84% forensic analysis of outcomes after the fact, which 00:15:55.710 --> 00:15:58.320 align:middle line:84% has been going on a lot this year, as you 00:15:58.320 --> 00:16:04.500 align:middle line:84% see public companies contending with currency headwinds. 00:16:04.500 --> 00:16:06.360 align:middle line:84% Because they were perhaps under hedged. 00:16:06.360 --> 00:16:09.770 align:middle line:84% You're seeing a lot of forensic analysis of these outcomes. 00:16:09.770 --> 00:16:11.520 align:middle line:84% And they're having to do this when they're 00:16:11.520 --> 00:16:13.320 align:middle line:90% issuing warnings guidance. 00:16:13.320 --> 00:16:18.060 align:middle line:84% And so that's, I think, a huge, very important part of policy 00:16:18.060 --> 00:16:20.310 align:middle line:84% is kind of determining how and when that would happen, 00:16:20.310 --> 00:16:21.690 align:middle line:90% what the guardrails are there. 00:16:21.690 --> 00:16:23.550 align:middle line:84% And then also the provision of resources 00:16:23.550 --> 00:16:26.700 align:middle line:84% necessary for those activities, which Ramon also touched on, 00:16:26.700 --> 00:16:31.110 align:middle line:84% and finally, a good policy is going to stipulate what 00:16:31.110 --> 00:16:33.420 align:middle line:84% types of exposures could be hedged, 00:16:33.420 --> 00:16:36.420 align:middle line:84% which the different sources of risk, the hedge 00:16:36.420 --> 00:16:39.090 align:middle line:84% products that are allowed, and perhaps even 00:16:39.090 --> 00:16:44.210 align:middle line:84% the recommended or allowable hedge execution strategies. 00:16:44.210 --> 00:16:46.400 align:middle line:84% MARY HENEHAN: Well, and that's a great point, Paula, 00:16:46.400 --> 00:16:48.720 align:middle line:84% and something we haven't touched upon yet. 00:16:48.720 --> 00:16:52.160 align:middle line:84% So once exposure is identified and it's 00:16:52.160 --> 00:16:55.010 align:middle line:84% measured and quantified, how are most companies 00:16:55.010 --> 00:16:58.220 align:middle line:90% actually hedging? 00:16:58.220 --> 00:17:01.310 align:middle line:84% PAULA COMINGS: So I will take that question quite literally 00:17:01.310 --> 00:17:04.740 align:middle line:84% and say that I think it's twofold. 00:17:04.740 --> 00:17:07.970 align:middle line:84% The first, I'm going to go out on a limb here and say, 00:17:07.970 --> 00:17:10.069 align:middle line:84% it's about which products are available. 00:17:10.069 --> 00:17:11.060 align:middle line:90% What are they using? 00:17:11.060 --> 00:17:13.910 align:middle line:84% And the second might be which types of execution strategies 00:17:13.910 --> 00:17:15.859 align:middle line:90% are typically used. 00:17:15.859 --> 00:17:20.089 align:middle line:84% So I'll tackle the first part, and maybe I'll defer to Ramon 00:17:20.089 --> 00:17:20.900 align:middle line:90% on the second. 00:17:20.900 --> 00:17:26.089 align:middle line:84% But I will say, in terms of broadly available products, 00:17:26.089 --> 00:17:29.060 align:middle line:84% there's two, or let's say 2 and 1/2, first generation hedging 00:17:29.060 --> 00:17:30.530 align:middle line:90% tools. 00:17:30.530 --> 00:17:32.930 align:middle line:84% Those are, of course, FX forwards, 00:17:32.930 --> 00:17:35.780 align:middle line:84% which are going to confer a legal obligation to exchange 00:17:35.780 --> 00:17:37.670 align:middle line:90% currencies on a future date. 00:17:37.670 --> 00:17:40.520 align:middle line:84% There's the kind of half product in my 2 and 1/2 00:17:40.520 --> 00:17:42.890 align:middle line:90% products, which is FX swaps. 00:17:42.890 --> 00:17:44.960 align:middle line:84% And I say that because swaps are simply 00:17:44.960 --> 00:17:48.470 align:middle line:84% a combination of two forwards in opposite directions with two 00:17:48.470 --> 00:17:49.610 align:middle line:90% different settlement dates. 00:17:49.610 --> 00:17:52.280 align:middle line:84% And then options, which confer the right but not 00:17:52.280 --> 00:17:55.218 align:middle line:84% the obligation to exchange currencies on a future date. 00:17:55.218 --> 00:17:57.260 align:middle line:84% But you're going to pay a premium for that right. 00:17:57.260 --> 00:18:00.020 align:middle line:84% So each of these products could be 00:18:00.020 --> 00:18:03.320 align:middle line:84% used to hedge any of the five sources of risks 00:18:03.320 --> 00:18:04.350 align:middle line:90% I mentioned earlier. 00:18:04.350 --> 00:18:08.390 align:middle line:84% However, some make more sense than others for each risk. 00:18:08.390 --> 00:18:09.950 align:middle line:90% And I'll give two examples. 00:18:09.950 --> 00:18:11.700 align:middle line:84% I'll focus on balance sheet remeasurement, 00:18:11.700 --> 00:18:14.000 align:middle line:84% since that's the most common, and also 00:18:14.000 --> 00:18:16.520 align:middle line:84% forecasted transactions or cash flow hedging. 00:18:16.520 --> 00:18:19.520 align:middle line:84% So to hedge balance sheet remeasurement risk, 00:18:19.520 --> 00:18:22.520 align:middle line:84% an FX forward to start and then followed 00:18:22.520 --> 00:18:25.280 align:middle line:84% by a series of rolling monthly or quarterly swaps 00:18:25.280 --> 00:18:26.690 align:middle line:90% makes the most sense. 00:18:26.690 --> 00:18:29.360 align:middle line:90% Because the exposures are there. 00:18:29.360 --> 00:18:31.190 align:middle line:84% The remeasurement dates are certain, 00:18:31.190 --> 00:18:33.350 align:middle line:84% and there's really no need for flexibility. 00:18:33.350 --> 00:18:35.150 align:middle line:84% There's simply a need for certainty, 00:18:35.150 --> 00:18:38.261 align:middle line:84% and an FX swap accomplishes that. 00:18:38.261 --> 00:18:41.720 align:middle line:84% FX forwards could be used to hedge forecasted cash 00:18:41.720 --> 00:18:45.180 align:middle line:84% flows or net investment, but options could also be used. 00:18:45.180 --> 00:18:47.720 align:middle line:84% So why would you choose one or the other? 00:18:47.720 --> 00:18:50.660 align:middle line:84% It really depends on factors or preferences, 00:18:50.660 --> 00:18:54.260 align:middle line:84% such as the certainty of the exposure or a willingness 00:18:54.260 --> 00:18:57.290 align:middle line:84% or unwillingness to lock in a forward rate versus seeing 00:18:57.290 --> 00:19:00.710 align:middle line:84% where the spot rate is at the time of an option expiry, 00:19:00.710 --> 00:19:01.790 align:middle line:90% for instance. 00:19:01.790 --> 00:19:05.960 align:middle line:84% And with respect to hedging forecaster transactions, 00:19:05.960 --> 00:19:09.200 align:middle line:84% the immediate and interim impacts of the pandemic, so 00:19:09.200 --> 00:19:11.930 align:middle line:84% showed us how quickly forecasts could 00:19:11.930 --> 00:19:14.180 align:middle line:84% become uncertain or outdated and kind of upset 00:19:14.180 --> 00:19:17.510 align:middle line:84% the apple cart, so to speak, in a hedging program. 00:19:17.510 --> 00:19:22.280 align:middle line:84% So a forecasted sale of say, 100 widgets, in March of 2020 00:19:22.280 --> 00:19:25.640 align:middle line:84% became a forecasted sale of 70 widgets in the following 00:19:25.640 --> 00:19:26.210 align:middle line:90% months. 00:19:26.210 --> 00:19:30.110 align:middle line:84% So one could argue that an FX option would have provided 00:19:30.110 --> 00:19:32.210 align:middle line:84% a little bit more flexibility than a forward 00:19:32.210 --> 00:19:35.720 align:middle line:84% in terms of the payout profile and potential hedge settlement 00:19:35.720 --> 00:19:39.350 align:middle line:84% risks as forecasted exposures declined. 00:19:39.350 --> 00:19:42.350 align:middle line:84% And there may have been a need to reduce their hedging, 00:19:42.350 --> 00:19:44.120 align:middle line:90% the hedging notionals. 00:19:44.120 --> 00:19:46.970 align:middle line:84% And the current environment I will just add 00:19:46.970 --> 00:19:50.240 align:middle line:84% is another good example of why it would make sense to consider 00:19:50.240 --> 00:19:52.070 align:middle line:90% different hedging instruments. 00:19:52.070 --> 00:19:55.910 align:middle line:84% So let's assume the historical fair value of euro dollar 00:19:55.910 --> 00:20:02.280 align:middle line:84% is 1.16, 1.18, depending on what PPP model you're looking at. 00:20:02.280 --> 00:20:04.850 align:middle line:90% So today, it's around $0.97. 00:20:04.850 --> 00:20:09.920 align:middle line:84% So does it make sense to lock in a long euro revenue 00:20:09.920 --> 00:20:13.490 align:middle line:90% hedges at $0.97 spot rate? 00:20:13.490 --> 00:20:16.415 align:middle line:84% Or does it make more sense to purchase downside protection, 00:20:16.415 --> 00:20:19.850 align:middle line:84% i.e. a euro put struck at the forward rate 00:20:19.850 --> 00:20:24.860 align:middle line:84% as a worst case scenario but be able to participate in upside, 00:20:24.860 --> 00:20:28.640 align:middle line:84% should the euro recover and move higher? 00:20:28.640 --> 00:20:31.940 align:middle line:84% I think that those are important considerations to noodle on, 00:20:31.940 --> 00:20:34.520 align:middle line:84% and a hedging policy would kind of 00:20:34.520 --> 00:20:36.710 align:middle line:84% stipulate when you could and couldn't 00:20:36.710 --> 00:20:38.970 align:middle line:84% do that or the flexibility between products. 00:20:38.970 --> 00:20:40.820 align:middle line:90% So I'll leave it at that. 00:20:40.820 --> 00:20:43.640 align:middle line:84% And Ramon, do you want to touch on some of the more common 00:20:43.640 --> 00:20:45.380 align:middle line:90% hedge execution strategies? 00:20:45.380 --> 00:20:52.380 align:middle line:90% 00:20:52.380 --> 00:20:54.480 align:middle line:90% RAMON ESPINOSA: Yes. 00:20:54.480 --> 00:20:56.250 align:middle line:90% Sorry about that. 00:20:56.250 --> 00:21:00.120 align:middle line:84% Happy to, Paula, and since you've touched on instruments, 00:21:00.120 --> 00:21:04.800 align:middle line:84% I will focus a bit more maybe on hedge timing, hedge tenors, 00:21:04.800 --> 00:21:07.140 align:middle line:90% and coverage amounts. 00:21:07.140 --> 00:21:11.880 align:middle line:84% Strategies tend to reflect the objective of the hedge program 00:21:11.880 --> 00:21:16.150 align:middle line:84% that they're intended to serve, as should be the case. 00:21:16.150 --> 00:21:19.230 align:middle line:84% And since the objectives of balance sheet, cash flow, 00:21:19.230 --> 00:21:21.000 align:middle line:84% and net investment hedge programs 00:21:21.000 --> 00:21:25.112 align:middle line:84% differ, so too to the program's strategies. 00:21:25.112 --> 00:21:26.820 align:middle line:84% So to start with a balance sheet program, 00:21:26.820 --> 00:21:30.630 align:middle line:84% for example, given the goal of minimizing FX 00:21:30.630 --> 00:21:34.260 align:middle line:84% gains and losses recorded in current income, 00:21:34.260 --> 00:21:38.550 align:middle line:84% balance sheet hedging strategies tend to be pretty simple. 00:21:38.550 --> 00:21:41.730 align:middle line:84% Organize net nonfunctional currency denominated 00:21:41.730 --> 00:21:45.240 align:middle line:84% balances by currency, and then as Paula mentioned, 00:21:45.240 --> 00:21:48.420 align:middle line:84% use forwards and swaps to cover high percentages 00:21:48.420 --> 00:21:50.640 align:middle line:84% of the balances from the time that they're 00:21:50.640 --> 00:21:53.960 align:middle line:90% recorded until they settle. 00:21:53.960 --> 00:21:57.140 align:middle line:84% Easier said than done perhaps, and the devil 00:21:57.140 --> 00:21:59.240 align:middle line:90% is always in the detail. 00:21:59.240 --> 00:22:01.580 align:middle line:84% For instance, the firm's P&L rate 00:22:01.580 --> 00:22:04.610 align:middle line:84% will determine when hedge coverage should begin. 00:22:04.610 --> 00:22:07.760 align:middle line:84% And should conversions occur during the month, 00:22:07.760 --> 00:22:09.770 align:middle line:84% it's a good practice to use swaps 00:22:09.770 --> 00:22:13.460 align:middle line:84% to execute the conversions rather than spot transactions 00:22:13.460 --> 00:22:16.460 align:middle line:84% to ensure that balances and hedges change 00:22:16.460 --> 00:22:18.500 align:middle line:90% in tandem with each other. 00:22:18.500 --> 00:22:20.090 align:middle line:84% But fundamentally, the strategies 00:22:20.090 --> 00:22:22.310 align:middle line:90% are relatively simple. 00:22:22.310 --> 00:22:26.090 align:middle line:84% Amid volatile currencies however, small gaps in coverage 00:22:26.090 --> 00:22:28.890 align:middle line:84% can result in large gains and losses. 00:22:28.890 --> 00:22:31.310 align:middle line:84% So I think it's very important to have an accurate 00:22:31.310 --> 00:22:34.940 align:middle line:84% information about balances and to act on that information 00:22:34.940 --> 00:22:36.920 align:middle line:90% in a timely manner. 00:22:36.920 --> 00:22:39.140 align:middle line:84% And as a result, this may be a prudent time 00:22:39.140 --> 00:22:42.260 align:middle line:84% to review your processes and procedures related 00:22:42.260 --> 00:22:44.940 align:middle line:90% to balance sheet programs. 00:22:44.940 --> 00:22:48.210 align:middle line:84% Next, let's turn to cash flow hedging programs. 00:22:48.210 --> 00:22:52.310 align:middle line:84% These programs focus on risks to future revenues and expenses 00:22:52.310 --> 00:22:54.180 align:middle line:90% and operating income. 00:22:54.180 --> 00:22:56.150 align:middle line:84% And their specific objectives may 00:22:56.150 --> 00:23:01.220 align:middle line:84% include reducing risk to budget or smoothing currency effects 00:23:01.220 --> 00:23:05.590 align:middle line:84% on revenues, expenses, and operating income over time. 00:23:05.590 --> 00:23:07.930 align:middle line:84% To accomplish these goals, companies 00:23:07.930 --> 00:23:12.350 align:middle line:84% tend to use one of several approaches. 00:23:12.350 --> 00:23:15.550 align:middle line:84% One approach might be described as a fixed term 00:23:15.550 --> 00:23:17.980 align:middle line:84% or back to budget hedging strategy, 00:23:17.980 --> 00:23:19.930 align:middle line:90% and it's intended to limit-- 00:23:19.930 --> 00:23:20.980 align:middle line:90% and wait for this. 00:23:20.980 --> 00:23:22.390 align:middle line:90% It might surprise you. 00:23:22.390 --> 00:23:25.180 align:middle line:84% It's intended to limit variances to budget. 00:23:25.180 --> 00:23:28.510 align:middle line:84% So the strategy involves complete or nearly complete 00:23:28.510 --> 00:23:32.090 align:middle line:84% coverage of exposures when the budget is finalized. 00:23:32.090 --> 00:23:34.690 align:middle line:84% And then the use of those hedged results, 00:23:34.690 --> 00:23:38.530 align:middle line:84% in terms of actually assembling the budget. 00:23:38.530 --> 00:23:40.900 align:middle line:84% These strategies provide good protection back 00:23:40.900 --> 00:23:43.570 align:middle line:90% to budget for the hedged items. 00:23:43.570 --> 00:23:46.090 align:middle line:84% They result in little month to month variation 00:23:46.090 --> 00:23:49.400 align:middle line:84% and results across the plan year, 00:23:49.400 --> 00:23:52.760 align:middle line:84% because hedging is essentially concentrated on a single date 00:23:52.760 --> 00:23:55.460 align:middle line:90% or during a narrow window. 00:23:55.460 --> 00:23:58.310 align:middle line:84% But that concentration of hedge execution 00:23:58.310 --> 00:24:03.450 align:middle line:84% does risk locking in values at extreme currency levels. 00:24:03.450 --> 00:24:05.330 align:middle line:84% And in the case of annual budgets, 00:24:05.330 --> 00:24:09.200 align:middle line:84% the strategy can also leave risk of significant year 00:24:09.200 --> 00:24:12.260 align:middle line:84% to year variation in results, what are sometimes 00:24:12.260 --> 00:24:14.300 align:middle line:90% referred to as cliff effects. 00:24:14.300 --> 00:24:16.520 align:middle line:84% Because exposures in different years 00:24:16.520 --> 00:24:19.310 align:middle line:84% will be hedged and locked in at rates, 00:24:19.310 --> 00:24:21.840 align:middle line:84% let's say, 12 months apart from one another. 00:24:21.840 --> 00:24:24.560 align:middle line:84% So to use Paula's example, a year ago, 00:24:24.560 --> 00:24:27.710 align:middle line:84% an annual budget that included euro revenues would have locked 00:24:27.710 --> 00:24:29.780 align:middle line:84% in values for those revenues, let's 00:24:29.780 --> 00:24:34.190 align:middle line:84% say, at euro dollar levels about 1.15, 1.16. 00:24:34.190 --> 00:24:38.030 align:middle line:84% Whereas, this year's budget would lock in revenues at rates 00:24:38.030 --> 00:24:41.910 align:middle line:84% below parity, rates that we haven't seen in decades, 00:24:41.910 --> 00:24:46.610 align:middle line:84% and certainly down significantly compared to last year's level. 00:24:46.610 --> 00:24:49.850 align:middle line:84% So the back to budget strategy, effective in terms 00:24:49.850 --> 00:24:51.470 align:middle line:84% of protecting budget, but it does 00:24:51.470 --> 00:24:53.900 align:middle line:84% have these shortcomings perhaps in terms 00:24:53.900 --> 00:24:58.160 align:middle line:84% of locking in at extreme levels and resulting 00:24:58.160 --> 00:25:01.130 align:middle line:84% in significant year on year volatility. 00:25:01.130 --> 00:25:04.730 align:middle line:84% An alternative strategy, often referred to 00:25:04.730 --> 00:25:08.970 align:middle line:84% as rolling and layering, averages into hedge coverage. 00:25:08.970 --> 00:25:14.510 align:middle line:84% So for example, a strategy might involve the quarterly execution 00:25:14.510 --> 00:25:18.980 align:middle line:84% of a layer of 3, 6, 9, and 12 month forwards, 00:25:18.980 --> 00:25:21.110 align:middle line:84% each covering portions of the exposures 00:25:21.110 --> 00:25:24.230 align:middle line:84% forecasted for the next four quarters. 00:25:24.230 --> 00:25:26.870 align:middle line:84% Over time, this strategy will result 00:25:26.870 --> 00:25:30.110 align:middle line:84% in conversions for a given quarter 00:25:30.110 --> 00:25:34.550 align:middle line:84% at an average of the rates 3, 6, 9, and 12 months prior 00:25:34.550 --> 00:25:36.500 align:middle line:90% to the quarter. 00:25:36.500 --> 00:25:39.560 align:middle line:84% So the gradual accumulation of hedge coverage 00:25:39.560 --> 00:25:43.400 align:middle line:84% accommodates and perhaps fits nicely with a situation 00:25:43.400 --> 00:25:45.770 align:middle line:84% where a firm may have challenges forecasting 00:25:45.770 --> 00:25:47.930 align:middle line:90% generating accurate forecasts. 00:25:47.930 --> 00:25:51.350 align:middle line:84% And the averaging reduces risk of locking 00:25:51.350 --> 00:25:55.280 align:middle line:84% in quarterly or annual revenues at a relative high or low 00:25:55.280 --> 00:25:56.810 align:middle line:90% for a currency. 00:25:56.810 --> 00:25:59.750 align:middle line:84% It dampens the effects of currency swings, 00:25:59.750 --> 00:26:03.410 align:middle line:84% and thereby, limits quarter on quarter and year 00:26:03.410 --> 00:26:06.500 align:middle line:90% on year variation in results. 00:26:06.500 --> 00:26:08.610 align:middle line:84% And by spreading effects over time, 00:26:08.610 --> 00:26:11.840 align:middle line:84% it also slows the pass through of, say, 00:26:11.840 --> 00:26:16.460 align:middle line:84% a sharp decline in the euro, as we've experienced this year 00:26:16.460 --> 00:26:19.430 align:middle line:90% to a value of euro revenues. 00:26:19.430 --> 00:26:22.670 align:middle line:84% Keep in mind that this last effect, the spreading 00:26:22.670 --> 00:26:25.760 align:middle line:84% of the effects over time, means that a rolling and layering 00:26:25.760 --> 00:26:29.750 align:middle line:84% strategy will also slow the pass through of a rebound 00:26:29.750 --> 00:26:31.850 align:middle line:90% in the euro should it occur. 00:26:31.850 --> 00:26:35.330 align:middle line:84% And the strategy also tends to leave greater risk to budget 00:26:35.330 --> 00:26:38.300 align:middle line:84% than a fixed term or the back to budget strategy. 00:26:38.300 --> 00:26:42.740 align:middle line:84% Because only a fraction of the exposures for the year ahead 00:26:42.740 --> 00:26:46.340 align:middle line:84% are locked in when the budget is set. 00:26:46.340 --> 00:26:49.130 align:middle line:84% As I'm sure you well know, there are countless variants 00:26:49.130 --> 00:26:51.740 align:middle line:84% of these rolling and layering strategies, 00:26:51.740 --> 00:26:55.160 align:middle line:84% ones that involve maybe shorter layers, 00:26:55.160 --> 00:26:57.350 align:middle line:84% just the quarterly execution of three month 00:26:57.350 --> 00:27:02.000 align:middle line:84% and six month forwards, or perhaps longer layers extending 00:27:02.000 --> 00:27:05.900 align:middle line:84% to longer tenors, perhaps layers that themselves involve 00:27:05.900 --> 00:27:08.720 align:middle line:90% different patterns of coverage. 00:27:08.720 --> 00:27:10.580 align:middle line:84% Each strategy or each variant will 00:27:10.580 --> 00:27:12.230 align:middle line:84% result in a different risk to budget, 00:27:12.230 --> 00:27:14.510 align:middle line:84% a different degree of smoothing, and a different set 00:27:14.510 --> 00:27:19.460 align:middle line:84% of operational requirements to implement. 00:27:19.460 --> 00:27:22.130 align:middle line:84% Today, with elevated currency volatilities, 00:27:22.130 --> 00:27:25.040 align:middle line:84% exposure uncertainty, and major currencies 00:27:25.040 --> 00:27:27.350 align:middle line:84% at relatively extreme levels, this 00:27:27.350 --> 00:27:30.680 align:middle line:84% may seem to be a prudent time to adjust cash flow hedging 00:27:30.680 --> 00:27:34.700 align:middle line:84% strategies, perhaps move from a fixed term back to budget 00:27:34.700 --> 00:27:38.270 align:middle line:84% strategy to a rolling and layering approach, 00:27:38.270 --> 00:27:41.240 align:middle line:84% or modify a rolling and layering strategy by incorporating 00:27:41.240 --> 00:27:45.920 align:middle line:84% options, or varying the lengths of the layers. 00:27:45.920 --> 00:27:47.490 align:middle line:84% Any of these adjustments, of course, 00:27:47.490 --> 00:27:50.360 align:middle line:84% will affect performance and the operational requirements 00:27:50.360 --> 00:27:51.720 align:middle line:90% of the strategy. 00:27:51.720 --> 00:27:54.500 align:middle line:84% So be sure to leverage your relationship partners again 00:27:54.500 --> 00:27:59.180 align:middle line:84% for help in understanding trade offs among the alternatives. 00:27:59.180 --> 00:28:03.140 align:middle line:84% Finally and not least, just a few words about net investment 00:28:03.140 --> 00:28:04.940 align:middle line:90% hedging. 00:28:04.940 --> 00:28:08.750 align:middle line:84% Arguably, this is the most discretionary form of hedging. 00:28:08.750 --> 00:28:11.000 align:middle line:84% Firms may choose to hedge a net investment 00:28:11.000 --> 00:28:14.880 align:middle line:84% or choose not to hedge their net investment exposures. 00:28:14.880 --> 00:28:19.430 align:middle line:84% And so strategies vary a lot from hedger to hedger. 00:28:19.430 --> 00:28:21.320 align:middle line:84% Net investment hedging may be motivated 00:28:21.320 --> 00:28:23.810 align:middle line:84% by potential cash flows associated 00:28:23.810 --> 00:28:25.550 align:middle line:90% with a net investment. 00:28:25.550 --> 00:28:28.280 align:middle line:84% Maybe their plan is to sell a non-dollar functional 00:28:28.280 --> 00:28:31.130 align:middle line:84% subsidiary, or maybe the subsidiary 00:28:31.130 --> 00:28:34.130 align:middle line:84% makes periodic dividends back to the parent. 00:28:34.130 --> 00:28:37.460 align:middle line:84% Or maybe the subsidiary simply holds a significant cash 00:28:37.460 --> 00:28:40.550 align:middle line:84% balance that the parent may want to redeploy. 00:28:40.550 --> 00:28:42.230 align:middle line:84% And therefore, there are arguments 00:28:42.230 --> 00:28:44.600 align:middle line:84% for putting in place hedges to protect the dollar 00:28:44.600 --> 00:28:48.050 align:middle line:90% values of these investments. 00:28:48.050 --> 00:28:50.780 align:middle line:84% Net investment hedging is also supported, 00:28:50.780 --> 00:28:53.780 align:middle line:84% and I would argue, maybe even be motivated 00:28:53.780 --> 00:28:56.240 align:middle line:84% by the accounting for net investment hedges 00:28:56.240 --> 00:29:01.550 align:middle line:84% under ASC 815, which governs the accounting for derivatives 00:29:01.550 --> 00:29:03.230 align:middle line:90% in general. 00:29:03.230 --> 00:29:05.240 align:middle line:84% For a qualifying net investment hedge, 00:29:05.240 --> 00:29:07.730 align:middle line:84% the change in the hedge instrument's value 00:29:07.730 --> 00:29:11.750 align:middle line:84% is recorded in CTA or in equity, which 00:29:11.750 --> 00:29:16.780 align:middle line:84% is where the effect of the investment translation 00:29:16.780 --> 00:29:18.820 align:middle line:90% itself is recorded. 00:29:18.820 --> 00:29:21.790 align:middle line:84% And the derivatives or the hedge instrument's change in value 00:29:21.790 --> 00:29:24.100 align:middle line:84% remains in CTA even after the hedge 00:29:24.100 --> 00:29:27.430 align:middle line:84% settles until the foreign investment is 00:29:27.430 --> 00:29:29.090 align:middle line:90% sold or liquidated. 00:29:29.090 --> 00:29:32.260 align:middle line:84% So no need to worry about risks to income 00:29:32.260 --> 00:29:34.690 align:middle line:90% from a net investment hedge. 00:29:34.690 --> 00:29:36.430 align:middle line:84% The net investment hedging rules are also 00:29:36.430 --> 00:29:40.450 align:middle line:84% very flexible with respect to the amount of the investment 00:29:40.450 --> 00:29:42.310 align:middle line:90% that might be hedged. 00:29:42.310 --> 00:29:45.220 align:middle line:84% Again, it could be just enough to cover some anticipated 00:29:45.220 --> 00:29:48.580 align:middle line:84% dividends, or it might be a greater amount covering 00:29:48.580 --> 00:29:51.310 align:middle line:84% in full the amount of the parent's 00:29:51.310 --> 00:29:53.440 align:middle line:90% investment in the subsidiary. 00:29:53.440 --> 00:29:55.630 align:middle line:84% The rules are also very flexible with respect 00:29:55.630 --> 00:29:59.650 align:middle line:84% to the tenors of hedges and the periods of the net investment 00:29:59.650 --> 00:30:01.150 align:middle line:90% that is hedged. 00:30:01.150 --> 00:30:02.620 align:middle line:90% And it even gets better. 00:30:02.620 --> 00:30:04.612 align:middle line:84% That is to say, the accounting rule 00:30:04.612 --> 00:30:06.070 align:middle line:84% treatment of net investment hedges, 00:30:06.070 --> 00:30:09.130 align:middle line:84% because in documenting a net investment hedge, 00:30:09.130 --> 00:30:12.070 align:middle line:84% we would have to specify whether forward or spot 00:30:12.070 --> 00:30:15.640 align:middle line:84% rates will be used to assess the effectiveness of the hedge. 00:30:15.640 --> 00:30:17.560 align:middle line:84% This choice is a one time election, 00:30:17.560 --> 00:30:20.050 align:middle line:84% and once you've made the election for a given net 00:30:20.050 --> 00:30:23.470 align:middle line:84% investment hedge, you're likely locked 00:30:23.470 --> 00:30:26.080 align:middle line:84% in for all other net investment hedges you might do. 00:30:26.080 --> 00:30:29.170 align:middle line:84% So it merits careful thought, and if you've 00:30:29.170 --> 00:30:32.110 align:middle line:84% executed net investments in the past-- net investment 00:30:32.110 --> 00:30:34.960 align:middle line:84% hedges in the past-- you might even be locked in. 00:30:34.960 --> 00:30:38.680 align:middle line:84% But if spot rates are used, and let's say, 00:30:38.680 --> 00:30:41.740 align:middle line:84% the net investment hedge is a forward, 00:30:41.740 --> 00:30:45.940 align:middle line:84% then the accounting requires that the initial value 00:30:45.940 --> 00:30:48.970 align:middle line:84% of the forward points be amortized income 00:30:48.970 --> 00:30:51.370 align:middle line:84% over the life of the hedge instrument. 00:30:51.370 --> 00:30:54.580 align:middle line:84% So with U.S. interest rates above important foreign 00:30:54.580 --> 00:30:58.210 align:middle line:84% interest rates, selling a currency forward 00:30:58.210 --> 00:31:02.590 align:middle line:84% against the dollar, as in a euro or yen in investment hedge, 00:31:02.590 --> 00:31:05.590 align:middle line:84% will result in favorable forward points. 00:31:05.590 --> 00:31:07.570 align:middle line:84% And the positive value of those points 00:31:07.570 --> 00:31:11.020 align:middle line:84% will be recorded in income over the life of the hedge. 00:31:11.020 --> 00:31:12.850 align:middle line:84% In other words, the net investment 00:31:12.850 --> 00:31:16.480 align:middle line:84% hedge itself may be accretive to income. 00:31:16.480 --> 00:31:18.460 align:middle line:84% Not surprisingly, with the Fed's moves 00:31:18.460 --> 00:31:20.980 align:middle line:84% to raise U.S. rates aggressively, 00:31:20.980 --> 00:31:26.290 align:middle line:84% there's been a surge in interest in net investment hedging. 00:31:26.290 --> 00:31:29.080 align:middle line:84% And with ASC 815 allowing flexibility 00:31:29.080 --> 00:31:31.930 align:middle line:84% in the choice of the tenor for a net investment hedge, 00:31:31.930 --> 00:31:35.770 align:middle line:84% it may be tempting to think about selecting the tenor that 00:31:35.770 --> 00:31:38.470 align:middle line:84% offers the greatest favorable forward points, 00:31:38.470 --> 00:31:40.968 align:middle line:90% say, on an annualized basis. 00:31:40.968 --> 00:31:42.760 align:middle line:84% But while considering those income effects, 00:31:42.760 --> 00:31:46.870 align:middle line:84% also keep in mind the settlement of the hedge, be it a forward 00:31:46.870 --> 00:31:49.030 align:middle line:84% or the final exchange of a cross-currency swap, 00:31:49.030 --> 00:31:52.600 align:middle line:84% as that may present cash flow risks that merit 00:31:52.600 --> 00:31:54.680 align:middle line:90% some consideration as well. 00:31:54.680 --> 00:31:57.070 align:middle line:84% So Mary, sorry for running a little bit long. 00:31:57.070 --> 00:32:01.780 align:middle line:84% I hope this overview of strategies is useful, 00:32:01.780 --> 00:32:04.127 align:middle line:90% but I'll return the mic to you. 00:32:04.127 --> 00:32:05.710 align:middle line:84% MARY HENEHAN: All right Thanks, Ramon, 00:32:05.710 --> 00:32:07.280 align:middle line:84% and I think it's incredibly useful. 00:32:07.280 --> 00:32:10.330 align:middle line:84% I think this topic in general is so big, 00:32:10.330 --> 00:32:15.190 align:middle line:84% and I think what you provided is a great overview of the varying 00:32:15.190 --> 00:32:18.760 align:middle line:84% strategies that companies employ today when they opt to hedge. 00:32:18.760 --> 00:32:22.780 align:middle line:84% Choosing which of those strategies is most optimal 00:32:22.780 --> 00:32:25.990 align:middle line:84% depends on a host of factors, as does 00:32:25.990 --> 00:32:28.540 align:middle line:84% the type of hedge chosen, which Paula spoke about earlier. 00:32:28.540 --> 00:32:33.100 align:middle line:84% And I think you both expressed what's 00:32:33.100 --> 00:32:36.610 align:middle line:84% most optimal is dependent upon so many factors. 00:32:36.610 --> 00:32:38.080 align:middle line:84% You expressed that so well today. 00:32:38.080 --> 00:32:40.570 align:middle line:84% So I appreciate your sentiments from both of you. 00:32:40.570 --> 00:32:43.750 align:middle line:84% I think the reality is there are so many nuances to all 00:32:43.750 --> 00:32:49.000 align:middle line:84% the aspects of the content that we've shared here today. 00:32:49.000 --> 00:32:50.920 align:middle line:84% I think you did a remarkable job, both of you, 00:32:50.920 --> 00:32:53.740 align:middle line:84% of distilling them and giving some insight into the elements 00:32:53.740 --> 00:32:56.140 align:middle line:84% that might be important as companies contend 00:32:56.140 --> 00:32:59.830 align:middle line:84% with the unpredictable nature of the markets 00:32:59.830 --> 00:33:01.270 align:middle line:90% that we're facing today. 00:33:01.270 --> 00:33:03.820 align:middle line:84% I think the identification of risk, 00:33:03.820 --> 00:33:07.090 align:middle line:84% and measurement of that risk, and use of a policy 00:33:07.090 --> 00:33:11.080 align:middle line:84% to help guide your actions are incredibly important factors 00:33:11.080 --> 00:33:12.790 align:middle line:90% of influence. 00:33:12.790 --> 00:33:15.910 align:middle line:84% Paula, you mentioned something earlier, the importance 00:33:15.910 --> 00:33:16.785 align:middle line:90% of forensic analysis. 00:33:16.785 --> 00:33:19.035 align:middle line:84% And I wanted to talk about that a little bit before we 00:33:19.035 --> 00:33:20.650 align:middle line:84% kind of wrap things up here today. 00:33:20.650 --> 00:33:24.640 align:middle line:84% Because I think the importance of the analysis, 00:33:24.640 --> 00:33:28.630 align:middle line:84% as you were talking about and how enlightening that can be, 00:33:28.630 --> 00:33:31.060 align:middle line:84% I think as you consider the extreme changes 00:33:31.060 --> 00:33:34.150 align:middle line:84% we've seen in the value of so many currencies 00:33:34.150 --> 00:33:36.670 align:middle line:84% and how those moves have impacted your business, 00:33:36.670 --> 00:33:39.160 align:middle line:84% I think that kind of forensic analysis 00:33:39.160 --> 00:33:41.200 align:middle line:84% would be of great value to everybody. 00:33:41.200 --> 00:33:44.020 align:middle line:84% I think what I'd say to everybody on the call 00:33:44.020 --> 00:33:48.220 align:middle line:84% today as you embark on Q4, your year end needs and obligations, 00:33:48.220 --> 00:33:50.980 align:middle line:84% to begin planning for 2023, hopefully what 00:33:50.980 --> 00:33:54.400 align:middle line:84% we've talked about here today gives you some food for thought 00:33:54.400 --> 00:33:57.790 align:middle line:90% and is certainly timely. 00:33:57.790 --> 00:34:01.850 align:middle line:84% The fact that we're wrapping Q3 here in just a couple of days, 00:34:01.850 --> 00:34:05.590 align:middle line:84% but we've tried to incorporate as many of the questions 00:34:05.590 --> 00:34:08.500 align:middle line:84% we got at the time of registration as possible 00:34:08.500 --> 00:34:10.159 align:middle line:90% into the conversation today. 00:34:10.159 --> 00:34:11.949 align:middle line:84% And if we didn't get to your question 00:34:11.949 --> 00:34:14.453 align:middle line:84% or you have more questions, I think 00:34:14.453 --> 00:34:15.870 align:middle line:84% we kind of keep saying this today, 00:34:15.870 --> 00:34:17.550 align:middle line:84% but reach out to your FX marketing 00:34:17.550 --> 00:34:20.339 align:middle line:84% partners, your relationship manager, or reach out to Paula 00:34:20.339 --> 00:34:21.060 align:middle line:90% and I directly. 00:34:21.060 --> 00:34:25.320 align:middle line:84% And we'll be sure to get back to you as quickly as possible 00:34:25.320 --> 00:34:26.250 align:middle line:90% with some information. 00:34:26.250 --> 00:34:29.219 align:middle line:84% I think, as I said, this topic today is a big one. 00:34:29.219 --> 00:34:31.139 align:middle line:84% Let us know where we can help translate 00:34:31.139 --> 00:34:33.480 align:middle line:84% what you've heard today into your own situation 00:34:33.480 --> 00:34:35.815 align:middle line:90% or put it into action. 00:34:35.815 --> 00:34:37.440 align:middle line:84% I also want to address that some of you 00:34:37.440 --> 00:34:41.280 align:middle line:84% asked questions related to the direction of specific currency 00:34:41.280 --> 00:34:41.880 align:middle line:90% pairs. 00:34:41.880 --> 00:34:44.190 align:middle line:84% And today, obviously, it's not a market update call, 00:34:44.190 --> 00:34:46.350 align:middle line:84% but we want to be responsive to those questions. 00:34:46.350 --> 00:34:48.630 align:middle line:84% And we'll reach out to you directly 00:34:48.630 --> 00:34:50.850 align:middle line:84% to provide some insight and our thoughts 00:34:50.850 --> 00:34:53.320 align:middle line:90% about currency direction. 00:34:53.320 --> 00:34:55.320 align:middle line:84% And as mentioned at the start of the call, 00:34:55.320 --> 00:34:57.990 align:middle line:84% we've got more educational sessions coming up 00:34:57.990 --> 00:35:00.600 align:middle line:90% in both October and November. 00:35:00.600 --> 00:35:04.170 align:middle line:84% The first one that's coming up first 00:35:04.170 --> 00:35:06.420 align:middle line:84% is on October 27, where we're partnering 00:35:06.420 --> 00:35:08.130 align:middle line:84% with our global treasury management team 00:35:08.130 --> 00:35:11.040 align:middle line:84% to cover what's new in international payments 00:35:11.040 --> 00:35:15.390 align:middle line:84% there's been an enormous shift in cross-border payment 00:35:15.390 --> 00:35:18.150 align:middle line:84% activity, specifically among our client base, 00:35:18.150 --> 00:35:19.740 align:middle line:84% but I think in the market itself, 00:35:19.740 --> 00:35:24.052 align:middle line:84% where companies are reevaluating the currency that they maybe 00:35:24.052 --> 00:35:25.260 align:middle line:90% historically have settled in. 00:35:25.260 --> 00:35:28.260 align:middle line:84% With the dollar being so significantly strong, 00:35:28.260 --> 00:35:33.390 align:middle line:84% it's had a major impact on both importers and exporters alike. 00:35:33.390 --> 00:35:36.850 align:middle line:84% So and then further, Paula mentioned this as well, 00:35:36.850 --> 00:35:38.310 align:middle line:84% and I did at the start of the call. 00:35:38.310 --> 00:35:41.040 align:middle line:84% But in November, we're taking this hedging conversation 00:35:41.040 --> 00:35:44.070 align:middle line:84% to the next level, where we'll focus specifically 00:35:44.070 --> 00:35:45.990 align:middle line:90% on hedge accounting. 00:35:45.990 --> 00:35:49.200 align:middle line:84% November the 10th is the first of two sessions where we'll 00:35:49.200 --> 00:35:52.290 align:middle line:84% present a derivative hedge accounting, kind of that 101 00:35:52.290 --> 00:35:55.200 align:middle line:84% level session, and following that up 00:35:55.200 --> 00:35:58.360 align:middle line:90% on November 17 with a 201 level. 00:35:58.360 --> 00:36:00.990 align:middle line:84% So again, kind of deepening the conversation around 00:36:00.990 --> 00:36:03.090 align:middle line:90% hedge accounting. 00:36:03.090 --> 00:36:05.525 align:middle line:84% If we can be of help at all with any of your FX needs 00:36:05.525 --> 00:36:06.900 align:middle line:84% or questions, again, please don't 00:36:06.900 --> 00:36:08.380 align:middle line:90% hesitate to reach out to us. 00:36:08.380 --> 00:36:13.407 align:middle line:84% We're absolutely here to be of value and offer some help. 00:36:13.407 --> 00:36:15.240 align:middle line:84% As Emily mentioned at the start of the call, 00:36:15.240 --> 00:36:16.920 align:middle line:90% this call has been recorded. 00:36:16.920 --> 00:36:20.190 align:middle line:84% You'll each receive a link to that call sometime in the next 00:36:20.190 --> 00:36:21.970 align:middle line:90% maybe one or two days. 00:36:21.970 --> 00:36:25.170 align:middle line:84% And with that, thank you, Paula and Ramon. 00:36:25.170 --> 00:36:28.890 align:middle line:84% Thank you both for sharing your knowledge and experience. 00:36:28.890 --> 00:36:31.110 align:middle line:84% It's been incredibly helpful and insightful. 00:36:31.110 --> 00:36:33.520 align:middle line:84% And for everybody on the call, thank you for your time. 00:36:33.520 --> 00:36:36.110 align:middle line:90% This concludes today's call. 00:36:36.110 --> 00:36:43.000 align:middle line:90%