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BUSINESSES LOOK TO HEDGE IN THE FACE OF RISING CURRENCY VOLATILITY

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BUSINESSES LOOK TO HEDGE IN THE FACE OF RISING CURRENCY VOLATILITY

By Lucy Lillicrap, FX Risk Management Solutions, AFEX

AFEX recently launched its second annual AFEX Currency Risk Outlook Survey. The results reveal a picture of UK SMEs that are more internationally focused this year than they were last year but that are, in the face of volatile markets, approaching international trade with caution.

Nearly half the UK-based respondents (46%) in the survey of more than 450 financial decision makers at SMEs globally, said they expected to increase their international trade levels in the year ahead. This is up from just 26% in 2014. By contrast, only around one in 10 (12%) plan to reduce their level of international trade.

However, there also seems to be increasing recognition among these businesses of the impact global market and political events can have on their international ambitions. In this year’s survey, finding the right suppliers and customers (31%) was replaced by currency risk (43%) as the number one challenge facing businesses when it comes to trading internationally. The proportion of people citing this has increased from 32% when we first conducted our survey in early 2014.

This attitude broadly reflects the behaviour of world markets over the period. Between 2013 and the middle of 2014, foreign exchange markets were relatively benign but in the last 12-18 months, that’s all changed with nowhere seemingly left unaffected by currency volatility. There was the Greek debt crisis which sent the euro tumbling, the currencies of Australia, Canada, South Africa and New Zealand have been hit by weakening global demand for commodities and even last year’s Scottish independence vote saw volatility in sterling against the dollar rise to its highest level since 2008. In the last couple of weeks – outside of the polling period for our survey – we’ve seen the People’s Bank of China step in to devalue the Yuan on a number of occasions, creating yet more currency volatility and reigniting discussions about the prospects of a ‘currency war’. This action, which has been interpreted by many as a signal of a weakening picture for the world’s second largest economy, reverberated on stock markets across the world.

The effects of this have not been confined to blue chip multinationals; any company that either buys or sells goods in a currency different to their own will have been made acutely aware of the effect currency fluctuations can have on their top and bottom lines. Our research shows that 6% of firms have attributed an increase in the size of their business in the last 12 months to currency volatility and 4% say it has enabled them to accelerate their growth plans. Others have been less fortunate, with 8% saying they’ve had to close an office, reduce the size of their business, lower staffing levels or cancel growth plans.

It is therefore unsurprising to find that many businesses, against this backdrop, are looking to take a more proactive approach to managing their currency risk. Currently, two-thirds (66%) of the UK SMEs surveyed do not employ hedging tools – such as Forward Contracts or Options – but this looks set to change. Some 83% of respondents plan to employ some kind of strategy to mitigate currency risk this year and only 5% of companies plan to utilise risk mitigation strategies less this year than they did last year.

The most popular form of hedging, which 52% of SMEs look set to use, is the Forward Contract. This is an agreement to buy a set amount of a currency at a certain rate at a certain point in the future. These are typically aligned with large, confirmed orders and provide certainty that the price they’ve agreed will be the price they end up paying. This should form part of the normal planning and budgeting process for large transactions. Because the price is locked-in, firms won’t face the prospect, for example, of having to find more cash than they’d allowed for for essential goods they’ve ordered from overseas, because the value of sterling has fallen.

De-risking transactions should be the number one aim for businesses when it comes to doing business in foreign currencies and Forward Contracts are an excellent way to do this.

More sophisticated businesses that want to retain some flexibility and take advantage of potential upside in return for paying a premium,can use currency options. As the name suggests, businesses have the option, rather than obligation, to buy a currency at a certain rate in the future. Only 3% of those surveyed plan to use Options but they can be useful when used in conjunction with Forward Contracts.

Also popular with those businesses surveyed is to pass on the currency risk to their customers and/or suppliers, with 26% of respondents saying they plan to adopt this as a strategy. Avoiding foreign exchange entirely is certainly an effective way to de-risk international business from currency volatility, but the reality for most businesses will be that they have limited pricing flexibility in all their markets. Even where the currency risk is passed on to a third party, it just moves it elsewhere in the supply chain and volatility therefore still has the potential to make its impact felt.

Global markets are more interconnected than ever before, as the current response to events in China on world stock markets has served to remind us. Currency volatility is part and parcel of this international marketplace and businesses of all sizes across the world have felt its effects over recent months. In response, as our research shows, there is a growing awareness among small and mid-sized businesses of the need to hedge their FX exposure, which is to be welcomed and encouraged. The key principles to remember are: know your currency exposure; hedge that exposure using the appropriate tools based on the best advice; and, take a long-term perspective that gives you the certainty and confidence to focus on running your business.

Business

Why CMOs Should Care About Customer IAM

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Why CMOs Should Care About Customer IAM 1

By Darshana Gunawardana, Associate Director/Architect at WSO2

The surge to move online in 2020, in turn, has driven demand for high-performance, cost-effective customer identity access management solutions. And as we kick off 2021, customer identity and access management (CIAM) have become essential for any business to really understand their customers which is why CMOs should actively engage with and care about their CIAM system.  I say this because within the various stages of a customer’s buying journey, such as awareness, consideration, purchase and service, more often than not a CIAM is running in the background ensuring the right solution enhances their digital experience by providing significantly better onboarding, personalisation, omnichannel experiences, and privacy controls and building that all-important trust with the customer.

So, let’s take a look at how CIAM works and the benefits it provides in the various stages of the customer journey:

The awareness stage is the very first step where a customer interacts with a company’s brand. This is where customers get to know about the product or the service offered by the business, which may lead them to access the company website or content on other platforms such as social media.

At this stage, customer interactions typically occur at an anonymous level. Therefore, the involvement of a CIAM solution will be minimal as no identifying information is available. However, it’s important to make use of products such as web analytics to preserve customer interest, which can be beneficial at a later stage.

At the consideration stage, customers will have more focused needs and they will show more engagement by downloading datasheets, following product demos/trials, etc. Typically, one or two customer attributes are captured in the CIAM at this level. Depending on the prominence of the attributes, this would be the starting point of representing the customer as a light user account in the CIAM system. These accounts do not have any credentials associated with them since customers have not gone through an onboarding process.

At this level, the CIAM’s inbound and outbound provisioning capabilities play a key role. For example, a prospective customer downloads a catalogue from a product website by providing their email; then, the website would create a light account in the CIAM system using a standard provisioning protocol like SCIM. Next, the CIAM solution will (outbound) provision that user account to different marketing tools – for example, Hubspot, and CRM tools like Salesforce, or web analytics such as Mixpanel.

Likewise, the organisation might correlate the light account with web analytics. This helps to obtain more insights about users, such as geolocation and what type of content they looked at during the awareness stage. These details can be used to provide more relevant, personalised information in the future.

The purchase stage is the level that receives the most amount of attention from most organisations. Depending on laws and regulations, it will be crucial to have verified user details. However, it’s important to ensure that the customer registration and onboarding process is simple and user-friendly.

Minimising the mandatory information fields requested from a customer helps significantly. This can be done by auto-filling information that is already associated with the light account. Another way to do this is by using progressive profiling so that the customer has to provide additional details only when they access a specific service that requires these details.

Having to maintain many accounts and credentials is a major pain point from a customer’s perspective. The ability to bring your own ID (BYOID)  to help simplify the registration process is important. This will also help to reduce self-service or call centre interactions in later stages as it will lessen the need of having to recover an account owing to misplaced or forgotten credential details.

Moreover, having direct integrations with identity verification services like Evident ID in the CIAM solution reduces the overhead of providing various documents or having to go through a manual process to verify customer information, such as proof of citizenship, insurance validity, and so on.

The service stage is also a key stage for many consumer businesses. The user experience at this level determines whether existing customers become champions or detractors for the brand.

From a CIAM standpoint, users should have seamless access to any product or service they consume. If there are multiple services involved, basic things like the ability to consume both services with the same account and having single sign-on among multiple applications have become must-have capabilities. Strong authentication with additional factors is also a need when accessing sensitive applications. In addition, adaptive authentication also plays a key role to balance convenience over security. Having mechanisms like account locking, and risk-based authentication gives more assurance to protect customers’ accounts from malicious parties.

This leads to another vital requirement: self-service. Customers should be able to update and review their privacy preferences, such as the use of different emails for different activities, change associated profile information, and update contact information. At the same time, a user should be able to adjust their security profile by configuring recovery mechanisms and register trusted devices for login. With the advancement of privacy regulations across the world, modern businesses must also give users data portability and the ability to deregister.

Additionally, during the service stage, a business might also go through changes, e.g., mergers and acquisitions of other brands, and these activities should not drastically impact the customer experience. The right CIAM solution can facilitate these moves in an incremental manner.

CIAM can even help initiatives such as loyalty programs, which aim to increase customer engagement. Loyal customers might opt for early access to new products and give more accurate feedback, which can be utilised in A/B testing for product or service changes.

As a CIAM solution is well connected with every system involving the customer, it enables organisations to generate enhanced and actionable behavioural data that can be used to predict and determine possible interests. Even during unprecedented times, this information helps to make better-informed decisions.

Enhancing the customer experience is at the heart of digital transformation. Today’s increasingly sophisticated customers view digital interactions as the primary mechanism to interact with products and services and, consequently, expect deeper online relationships delivered simply, securely, and seamlessly. CIAM plays a vital role in connecting applications and APIs to customers and provides all the capabilities needed to deliver a customer experience that is second to none.

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Business

Volkswagen faces EU fine for missing 2020 emissions targets

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Volkswagen faces EU fine for missing 2020 emissions targets 2

BERLIN (Reuters) – Volkswagen faces a fine of more than 100 million euros ($121 million) for missing EU targets on carbon dioxide (CO2) emissions from its 2020 passenger car fleet, the world’s largest carmaker said on Thursday.

It cut average CO2 emissions in the fleet in the European Union by around 20% to 99.8 g/km, but that was around 0.5 g/km above its target, Volkswagen said.

That implied EU fines amounting to a “very low triple-digit million amount”, a spokesman said.

European policymakers have clamped down on exhaust emissions, forcing carmakers to spur development of low-emission technology or face a penalty of 95 euros per gram of excess CO2 they emit.

“We narrowly missed the fleet target for 2020, thwarted by the COVID-19 pandemic,” CEO Herbert Diess said in a statement, adding he hoped to meet the target this year as the company’s main brands bring out new electric models.

Volkswagen is reducing the combustion-engined cars it offers and retooling more factories to build electric vehicles in an effort to keep up with electric carmaker Tesla.

It has said the EU’s more stringent emissions targets will force it to boost the proportion of hybrid and electric vehicles in its European car sales to 60% by 2030, up from a previous target of 40%.

Volkswagen admitted in 2015 to cheating emissions tests on diesel engines, a scandal which has cost it more than 30 billion euros ($33 billion) in regulatory fines and vehicle refits, mostly in the United States.

($1 = 0.8237 euros)

(Reporting by Jan Schwartz, writing by Emma Thomasson; editing by Jason Neely)

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Oil dips after unexpected rise in U.S. crude stocks

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Oil dips after unexpected rise in U.S. crude stocks 3

By Ahmad Ghaddar

LONDON (Reuters) – Oil slipped on Thursday after industry data showed a surprise increase in U.S. crude inventories that revived pandemic-related demand concerns, but United States stimulus hopes limited the price downturn.

Brent crude futures fell 47 cents, or 0.8%, to $55.61 a barrel by 1030 GMT.

U.S. West Texas Intermediate (WTI) crude futures fell 43 cents, or 0.8%, to $52.88 a barrel, following two days of gains on expectations of massive COVID-19 relief spending under new U.S. President Joe Biden.

U.S. crude oil inventories rose 2.6 million barrels in the week to Jan. 15, according to data from industry group the American Petroleum Institute, compared with analysts’ forecasts in a Reuters poll for a 1.2 million barrel fall. [API/S]

Official Energy Information Administration (EIA) inventory data is due on Friday.

“If delayed EIA numbers tomorrow show a similar crude oil build, it would be the first build seen since early December,” analysts at bank ING said.

Rising COVID-19 cases in China, the world’s largest crude oil importer, also weighed on prices.

Beijing plans to impose strict COVID testing requirements during the Lunar New Year holiday season, when tens of millions of people are expected to travel, as it battles the worst wave of new infections since March 2020.

The commercial hub of Shanghai reported its first locally transmitted cases in two months on Thursday.

Elsewhere, new U.S. President Joe Biden’s administration has committed to curb carbon emissions and among his first actions as president, Biden announced America’s return to the Paris climate accord and revoked a permit for the Keystone XL oil pipeline project from Canada.

The administration is also committed to ending new oil and gas leasing on federal lands.

The administration will also seek to lengthen and strengthen the nuclear constraints on Iran through diplomacy and will be raising the issue in early talks with foreign counterparts and allies, according to the White House.

(Additional reporting by Sonali Paul in Melbourne and Koustav Samanta in Singapore. Editing by Jane Merriman)

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