| FINANCE Guide to Treasury & Corporate Banking 2007: volatility will be the name of the game over the coming year |
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| Uncertainty in both the interest rate and foreign exchange environments will mean 2007 is set to be a challenging year for corporate treasurers, according to leading treasury professionals writing in this year's FINANCE Guide to Treasury & Corporate Banking. |
Volatility will be the name of the game in 2007, as rising interest rates and a weakening dollar characterise the global markets. For treasurers, this means after a few years of relative certainty, particularly from a European interest rate perspective, hedging will once again be a priority to protect against unforeseen downsides.
Writing on page 4, Criona Fitzgerald of Investec Bank describes the wide variety of hedging products that are now available for treasurers looking to hedge against interest rate risks, including knock-out swaps and extendible swaps. She says, 'Treasurers don’t need to use complicated new products but there may be some benefits to looking at the different products available to make an appropriate decision'.
From a currency perspective, writing on page 4, Bryan Conway, a senior dealer with Barclays Capital,says that in the current economic environment, with fundamental uncertainty creating volatile foreign exchange markets, that are being exaggerated by increased trading volumes, corporates face increasingly uncertain variables that effect bottom line financial performances. He recommends that, 'by identifying these pitfalls (in advance, where possible) and being proactive in creating a suitable risk management profile, corporates can not only prevent unpleasant surprises to the bottom line, but they can turn these into opportunities for organisations'.
Against this background of uncertainty, Declan Fitzgerald, head of capital markets at Ulster Bank, recommends the importance of having 'a view' on how things might turn out. But he cautions, 'When taking that view into account, it is imperative to ensure that there is a balance between risk and reward, with the end goal to ensure that risks are minimised and potential profit maximised. The challenge here is risk management. Most companies are likely to have significant interest rate exposures linked either to debt positions or investment portfolios. It is important therefore that management policies be in place to help determine how the many risk factors that will affect your business will be managed'.
Investment
In an examination of the changing variety of investment products available for treasurers on page 10, David Kiely, head of treasury & investor solutions at Ulster Bank Capital Markets notes the increasing use of commodity type products, such as commodity-linked capital protected deposits, and property trusts.
Private placements
Private placements remain a very popular instrument for Irish corporates looking to gain access to the US market.
On page 6, Brendan McGrath adds that collectively, Irish corporates, including firms such as Grafton, Kingspan and the Quinn Group, have within the past four years raised more than $3.75 billion in the US private placement market. |
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