By Tanja Zimmermann
Professor Yvonne Hofstetter, CEO of 21strategies, is participating in the 25th anniversary of the Association of German Treasurers (VDT) on March 22, 2022. A day dedicated entirely to currency risk in the form of a so-called Risk Day. For this purpose, the VDT offers a travel through time by the treasury's risk worlds. Experts from all areas will contribute to the 25th anniversary of the association. The celebration will take place in the Deutsche Bank Park in Frankfurt am Main. As an expert in the field of treasury, Professor Yvonne Hofstetter will be taking part in four workshops dedicated to currency management and also the changes it undergoes over time. As the CEO of a deep tech startup that has set out to bring next-gen AI to treasury, she has the expertise to talk to about developments in this area.
Hedging currency risks: the missed opportunity in companies
Currency management, in particular the hedging of currency risks, is still treated quite poorly in many companies today. This is because the view is still held that treasury management makes no contribution to a company's success. However, if it is ignored, it can quickly put a company in a poor position. The reality is usually like this: In many companies, currency management is not carried out or is seen as market agnostic. By and large, this has the result that currency exposure usually is being hedged at 100% when it occurs. At the same time, however, this has the effect that it is no longer possible to respond to market changes until maturity date. This approach is usually based on the mindset that Treasury should manage risk rather than making profitable hedges. Hedging shall not be used for speculative purposes – this is the widespread way of thinking. But is it also economical to miss out on opportunities? Is it not more economical to adapt to current developments and correct an earlier hedge decision if the market proposes so? Otherwise, won't many opportunities be missed? An economic approach has nothing to do with speculation. On the contrary, the current approach does not do adequate job of meeting dynamic requirements. For example, in hedging, exposures are considered and then hedged in a further step. Significant influencing factors are not taken into account because it is not wanted or because it does not seem technologically possible. The policies of central banks or the geostrategic actions of individual countries, which ultimately influence the development of interest rates and commodity prices, are therefore often not taken into account.
Using Next-Gen artificial intelligence to open up new opportunities in hedging currency crises
A day-to-day focus alone brings a realistic view to the company's day-to-day activities. But also due to the large amount of data and a very dynamic environment, it is hardly possible for many companies to keep up with the developments. This is where 21strategies comes into play at the latest. The product Hedge21 from 21strategies offers a solution to this gap. With its next-gen AI technology, 21strategies is able to provide an optimizing hedge strategy in real-time to counter currency risk, interest rate and commodity price risks. For such risks, Hedge21 is able to determine an optimal hedging strategy and provide decision recommendations. In particular, the technology allows a company's specific requirements and influencing factors to be taken into account: oil price developments through to interest rate developments. This allows a hedging technology to be determined based on real-time data. But hedging strategies alone are difficult to integrate into the daily routine of a treasury department. That's why 21strategies' technology goes one step further: Hedge21 provides decision support by delivering proposals for action. Only then can the best use be made of the technology.
The use of next-gen AI requires re-thinking the hedging process
In conclusion, 21strategies' AI technology provides decision support for treasury departments. It determines an optimizing hedging strategy taking into account both the company's hedging policy and market developments to compute optimal decisions under uncertainty. Next-gen AI offers a high degree of flexibility here. A transfer to other use cases is possible. Contact us to find out how we can help you.