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Whilst many of us have been spending quality time at the beach and in the surf over recent weeks (in NZ anyway) the Hedgebook development team has been kept busy and out of the sunlight. We pride ourselves on being nimble and able to develop quickly in response to feedback from our users. As such we have completed three significant additions to the HedgebookPro app:

  • Real-time FX spot rates and forward points onto the landing page of the app
  • Email alerts
  • Interest Accrual Report

 

Real-time fx spot rates and forward points onto the landing page of the app

Naturally, a company that is using HedgebookPro to manage its fx derivatives requires visibility over key exchange rates to aid the decision making process when entering hedges. To date, the only underlying fx data exposed within the HedgebookPro app is the spot and forward rate used in the valuation of the derivative. We have added the ability for HedgebookPro users to subscribe to a live fx rates module which are displayed on the landing page when the user first logs into the app. The rates are real-time and refresh every five seconds. Currently we display key cross rates and forward points for NZ and Australia. The image below shows the NZD version. The rates can be “popped out” into a new browser window and will update even if the HedgebookPro app is closed. With the current high volatility in exchange rates, this new HedgebookPro feature will help decision makers keep abreast of their key fx rates. Contact us at help@hedgebook.co.nz if you wish to enable this feature.

Rates on HBPro

 

Email alert for maturing instruments

We have added email alerts functionality to HedgebookPro to help users administer their derivatives. Now a user can receive a daily email that summarises all their fx and interest rate products that are maturing, including drawn debt. The alert will help to ensure appropriate actions are made on a timely basis such as Cashflows at the maturity of fx forwards/options or refinancing of debt. An email into your inbox will clearly tell you what is imminent, in fact the user can decide how far in advance of maturity they want to be notified.

Interest Accrual Report

Many of our HedgebookPro users spend hours at month-end using spreadsheets to calculate the interest accrual on interest rate swaps for accounting purposes. HedgebookPro now does this at the click of a button. As one of our clients said, “That is great.  Will save our Accountant from some time consuming calcs each month.” Steve Paterson, Strategy Manager – Finance, Palmerston North City Council.

You’re welcome.

HedgebookPro will continue to evolve and offer the best value for money of any treasury management system on the market today and we look forward to sharing the developments in future newsletters. If you have any suggestions please share them with us as we are committed to delivering useful, practical features to the Hedgebook app to help make the treasury function run smoothly.

 

We are pleased to announce that EBOS Group Limited has recently taken HedgebookPro.

EBOS Group is a publicly listed company on the New Zealand Stock Exchange and has over 2,200 staff headquartered in New Zealand with over 40 offices located throughout Australasia. EBOS Group is one of the largest suppliers of international healthcare brands in the Australasian region.

EBOS Group has multiple entities with various interest rate and foreign exchange derivatives. To effectively manage the financial reporting requirements of these multiple entities EBOS knew they needed a system. Independent derivative valuations, IFRS 7 and IFRS 9 compliance is made easy with HedgebookPro. Hedgebook’s solution fitted the bill with its simple but intuitive approach to a complex area. Cost was also an issue as EBOS Group, whilst being a large company, does not have overly complex hedges and so needed a system which did the basics well.

EBOS Group’s Group Accountant Tonia Johnson said “the key requirements for us were around complying with the accounting standards, specifically doing hedge accounting under IFRS9. Hedgebook covers this off, as well as being easy to use and cost-effective.”

We welcome Tonia and EBOS Group as new HedgebookPro users.

We have discussed CVA at length in our newsletter and blog as it is arguably the most significant change to the accounting standards, from a financial instruments valuation perspective, since hedge accounting was introduced. The standard relating to CVA, IFRS 13, was developed as a result of the Global Financial Crisis. It became apparent that credit risk had been mispriced for a long time in the lead up to the implosion of the credit markets in 2008/2009. IFRS 13 forces organisations to include an adjustment to financial instruments to represent a credit component – both for the reporting entity as well as the counterparty. The adjustment can be a reasonably immaterial number impacted by factors such as the remaining term to maturity and how far in- or out-of-the-money the derivatives are.

Some companies argue that the relative immateriality of the credit adjustment reduces the necessity of quantifying the credit component, to the extent that some companies are not bothering to do it. We understand that view as IFRS 13 seems like another regulatory requirement that adds little value to the business. However, the standard is explicit in its language that “fair value”, by definition, includes credit, therefore, the decision to do nothing about it cannot pass muster with the auditor.

A contributing factor to the “immateriality” argument is the prevailing benign credit conditions. The credit spread of banks can be observed through the Credit Default Swaps (“CDS”) market. A CDS is like an insurance policy – it compensates the holder of the policy if the underlying entity defaults on its debt obligations. As the chart below shows the credit quality of the big 4 Australian banks has been improving since the spike in 2011 and has continued to retrace back to levels that prevailed pre GFC. The resulting effect is to reduce the credit valuation impact on out-of-the-money derivatives (current exposure method). We would argue that although credit conditions have returned to benign levels it is only a matter of time before another credit shock occurs and companies will be better prepared to quantify such impacts if they already have a tried and tested methodology in place. Our Hedgebook clients benefit from the system’s low cost, easy to use CVA module.

Big 4 CDS 3 year

At Hedgebook we are committed to providing economical solutions to assist the treasury function. Our low cost software, HedgebookPro, provides a treasury management system (“TMS”) entry point for companies that have historically relied on spreadsheets to manage their foreign exchange and interest rate exposures. HedgebookPro is also an alternative for companies that already use a TMS to capture their vanilla derivatives and feel they do not use the full functionality offered by these larger and more expensive systems.

We take a similar approach to financial market data through our company Infoscan. Hedgebook purchased the Infoscan business 12 or so months ago as it is a natural fit for Hedgebook. Many New Zealand market participants of a certain age will remember the Infoscan pagers – they carried a certain cachet at the time! Data is delivered to smartphones these days.

Many companies with exposure to foreign exchange and interest rate markets cannot justify the cost of a Bloomberg or Thomson Reuters product. Websites are OK for accessing spot fx rates on a rough and ready basis but are unsatisfactory for providing the required comfort when entering into larger derivative transactions. Infoscan gives users the visibility over real-time market spot fx rates but, more critically, the fx forward market too. As mentioned, free websites can give an indication of spot rates but accessing accurate forward point information is harder to ascertain.

Whether transacting a new FEC, or adjusting an existing one through pre-deliveries and extensions, it is important for decision makers to have good information at hand regarding the prevailing forward market. Transparency of the forward points provides greater confidence that a competitive market rate is achieved.

Infoscan can deliver data in a number of ways either through a website login or, alternatively, directly into spreadsheets. Like HedgebookPro the market data functionality is delivered in a no fuss, low cost manner and helps enhance fx conversion rates.

An important aspect of most companies marketing strategy these days is via their website. At Hedgebook we spend lots of time developing our derivative hedging software and have to date been somewhat remiss in the development of our web presence. We have taken some initial steps to address this by adding some extra information about the company and the individuals behind the company. We have also included some more technical aspects regarding the operations of the company, hosting of the application and disaster recovery. Additionally, we now display a selection of fx rates, interest rate swap rates and metals prices on our home page. The rates are live and update every five seconds. The aim is to provide a quick view of the key rates Hedgebook users care about.

We have also released an update to the Hedgebook application. We are constantly working on changes and improvements to the valuation and reporting software to give users either access to new instruments and features, or making existing ones more intuitive and easier to use. The most material changes from this software update include exposing the cashflow map for amortising interest rate swaps and we have also streamlined the reporting functionality.

Feedback always welcome.

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