WO2019138285A1 - A system and method for managing risk in a transaction involving foreign exchange - Google Patents

Abstract

A system and method for managing risk in a transaction involving foreign exchange is disclosed. The system includes one or more processors which receive exposure data from a user device, receive market data from a data storage device based on the received exposure data, and process the exposure data and the market data to determine foreign exchange (FX) rate for a financial transaction. The one or more processors re‐determine the FX rate for the transaction (both live and historical) by determining a split between a spot rate and a forward rate, and further determine revenue booked by the financial entity device, based on the determined split between the spot rate and the forward rate.

Description

A SYSTEM AND METHOD FOR MANAGING RISK IN A TRANSACTION INVOLVING FOREIGN

EXCHANGE

FIELD OF THE INVENTION The present invention generally relates to foreign exchange systems. More particularly, the present invention relates to systems and methods for real-time foreign exchange risk management system.

BACKGROUND OF THE INVENTION

This section is intended to provide information relating to the field and background of the invention and thus any approach/functionality described below should not be assumed to be qualified as prior art merely by its inclusion in this section.

Foreign Exchange markets are one of the biggest markets globally with an approximate daily turnover, as per certain estimates, to be above USD 5 trillion. Moreover, the daily turnover continues to increase rapidly due to an explosion in international trade (goods and services), international investment flows and trading activity by large and small investors.

Corporate and financial entities, conducting business on an international level and/or are associated with entities in other countries, generally deal in business transactions involving multiple currencies, different from their domestic or operative currency.

In order to facilitate financial transactions involving foreign exchange (FX), the parties often establish credit relationships with one or more FX rate providers who provide updates on the current exchange rate, and help in conducting the FX transaction. In such cases of financial transactions dealing in a different currency than the domestic or operative currency of the corporate/ financial entity, there may be a fluctuation in FX rates which may lead to gains or losses for the corporate/financial entity. Therefore, corporate/financial entities often have a "FX rate exposure" associated with a financial transaction, which is the risk associated with the impact of uncertain exchange rates on the financial transaction.

In order to offset the impact of the FX rate exposure, the corporate/financial entities attempt to forecast the exposure and engage in hedging activities by entering into FX agreements to determine the value of a transaction in a specific currency to be valid for a future date. Currently deployed risk management activities are, however, inaccurate and fail to identify and effectively manage the currency value fluctuation.

At present, the corporate/financial entities have a number of diverse approaches towards managing and hedging their FX exposure. Although, these hedging transactions are conventionally conducted as separate transactions from a primary or underlying financial transactions, but these hedging transactions have a huge impact on the primary or the underlying financial transaction.

It is pertinent to note that there are many shortcomings in the current methodologies/systems used for managing the financial transactions involving FX exchange. Many entities are either unaware of currency exposure or are unable to effectively manage currency value fluctuation that might impact a financial transaction of the corporate/ financial entity. Even the entities which are aware of currency value fluctuation, often encounter difficulties and inefficiencies in identifying and managing the risk.

Further, the entities which transact in foreign currency often have inefficient means available for hedging. Mostly, the entities become aware of the FX rate only on a post-facto basis, that is, after conducting the transaction. In these systems, there is a need for incorporation of separate compliance implementation for procedural and substantive requirements for the primary transaction and the FX transaction into the systems that rely on this information (e.g., accounting systems and inventory systems). There exists no current implementation for identifying, calculating and managing risk in foreign exchange transactions using live and historical FX market data with applicable local regulations for foreign exchange, including any technique applicable for determining the FX exposure and risk.

Further, in the current scenario, the treasury department is solely responsible for monitoring the FX market and the transaction flow. Further, the treasury department only decides if the hedging FX transaction is required and in what instance. This creates a strong dependency on the treasury which may be inefficient and unable to appropriately manage the fluctuations in the FX market rates.

Therefore, in light of the aforementioned drawbacks and other lacunas inherent in the existing arts, there exists a need to provide an improved method and system for i mitigating risks associated with participation in financial transaction involving FX, along with providing additional functionalities like real-time FX rates, customized exposure, hedge analysis, comparison of past treasury performance with current rates and budget rates and the like, to conduct an efficient transaction and optimize real-time decision making. OBJECTS OF THE INVENTION

This section is intended to introduce certain objects of the disclosed methods and systems in a simplified form, and is not intended to identify the key advantages or features of the present disclosure.

In view of the drawbacks of the existing FX risk management mechanisms, there exists a primary need to provide systems and methods for determining FX risk management to bring transparency, efficiency and easier decision making and thereby saving substantial costs for users.

It is an object of the present invention to provide systems and methods that provide real-time FX risk management for a financial transaction between a user and a financial entity. It is also an object of the present invention to provide systems and methods that monitor, calculate and determine risk management for FX in financial transactions using FX spot and forward, along with live and historical market FX rate data, along with any applicable local regulations for foreign exchange, including any technique applicable for determining the FX rate. Another object of the present invention is to provide systems and methods that allow optimized calculation and determination of analysis of the pricing efficiency, impact on effective rate, comparison with budget rate and hedge efficiency score in respect of the rate determined for a financial transaction. As used herein, effective rate refers to the final rate applicable for a transaction while taking into account various cash-flows associated with the transaction. As used herein, budget rate refers to the exchange rate that the user entity's management utilizes for calculations between their operative currency and other currencies in respect of various financial transactions to draft budgets and establish business objectives for the user. It is yet another object of the present invention to provide monitoring and evaluating any risk or exposure and performance of the user in respect of a financial transaction, including all hedged & un-hedged exposures.

It is yet another object of the present invention to determine and analyze the budget rate applicable to individual exposures, with existing market rates and effective rate, including all possible cash-flows, for hedged and un-hedged exposures.

It is yet another object of the present invention to evaluate the financial amount determined for at least one financial transaction, including a hedge transaction, with various financial entities and consequently determine the efficiency with banks and translate the same into the operative currency for the entity.

It is yet another object of the present invention to make appropriate decisions on timing and quantum of market action for financial transactions of the user.

It is yet another object of the invention to allow for real-time integration of the user transactions with market data sources, along with bulk data import and export values. It is yet another object of the invention to enable users to implement appropriate compliance requirements for treasury management in line with any applicable local regulations for foreign exchange, including any technique applicable for determining the FX rate.

It is yet another object of the invention to provide data which can be utilized by the user to modify or correct any hedge transaction information as well as provide inputs to procurement and customer management teams for accurate and correct decision making.

SUMMARY

In one aspect of the present invention, there is provided a system for managing risk in a transaction involving foreign exchange. The system includes one or more processors which are configured to receive exposure data from a user device, receive market data from a data storage device based on the received exposure data, and process the exposure data and the market data to determine foreign exchange (FX) rate for a financial transaction. The one or more processors are further configured to re-determine the FX rate for the financial transaction by determining a split between a spot rate and a forward rate. Based on the determined split, a revenue booked by the financial entity device, is determined.

In another aspect of the present invention, there is provided a method for managing risk in a transaction involving foreign exchange. The method includes receiving exposure data from a user device, receiving market data from a data storage device based on the received exposure data, processing the exposure data and the market data to determine foreign exchange (FX) rate for a financial transaction. The method further includes re-determining the FX rate for the financial transaction by determining a split between a spot rate and a forward rate, and determining revenue booked by the financial entity device, based on the determined split between the spot rate and the forward rate.

BRIEF DESCRIPTION OF DRAWINGS

The preferred embodiments of the present invention may be best understood when read in conjunction with the following drawings:

Figure 1 depicts an illustration of a system in accordance with the present invention to provide real-time FX risk management, in accordance with the present invention.

Figure 2 depicts a method to provide real-time FX risk management, in accordance with the present invention.

DESCRIPTION OF THE INVENTION

In the following description, for the purposes of explanation, numerous examples have been set forth in order to provide a brief description of the invention. It will be apparent however, that the invention may be practiced without these specific details, features and examples; and the scope of the present invention is not limited to the examples provided herein below.

Exemplary embodiments now will be described with reference to the accompanying drawings. The invention may, however, be embodied in many different forms and should not be construed as limited to the embodiments set forth herein; rather, these embodiments are provided so that this invention will be thorough and complete, and will fully convey its scope to those skilled in the art. The terminology used in the detailed description of the particular exemplary embodiments illustrated in the accompanying drawings is not intended to be limiting. In the drawings, like numbers refer to like elements.

The specification may refer to "an", "one" or "some" embodiment(s) in several locations. This does not necessarily imply that each such reference is to the same embodiment(s), or that the feature only applies to a single embodiment. Single features of different embodiments may also be combined to provide other embodiments.

As used herein, the singular forms "a", "an" and "the" are intended to include the plural forms as well, unless expressly stated otherwise. It will be further understood that the terms "includes", "comprises", "including" and/or "comprising" when used in this specification, specify the presence of stated features, integers, steps, operations, elements, and/or components, but do not preclude the presence or addition of one or more other features, integers, steps, operations, elements, components, and/or groups thereof. It will be understood that when an element is referred to as being "connected" or "coupled" to another element, it can be directly connected or coupled to the other element or intervening elements may be present. Furthermore, "connected" or "coupled" as used herein may include wirelessly connected or coupled. As used herein, the term "and/or" includes any and all combinations and arrangements of one or more of the associated listed items.

Unless otherwise defined, all terms (including technical and scientific terms) used herein have the same meaning as commonly understood by one of ordinary skill in the art to which this invention pertains. It will be further understood that terms, such as those defined in commonly used dictionaries, should be interpreted as having a meaning that is consistent with their meaning in the context of the relevant art and will not be interpreted in an idealized or overly formal sense unless expressly so defined herein.

The present invention includes systems and methods that provide a real-time foreign exchange (FX) risk management. The present invention encompasses the monitoring, calculation and determination of risk management for FX transactions using FX spot and forward, along with live and historical market FX rate data.

Figure 1 illustrates a system (100) configured to provide real-time FX risk management in accordance with the working of the present invention, wherein the system comprises at least one user device (102), one or more processors (104) and at least one data storage device (106), at least one financial entity (108) wherein the system (100) connected to each other via a communication network (110) for enabling communication amongst the various components of the system (100). The processor (104) includes an input module (104a), a calculation module (104b), a pricing module (104c) and an output module (104d). The modules (104) may be program modules stored in the processor (104), or hardware modules connected to the processor (104). In an embodiment, the system (100) resides in a processor (104), while in another embodiment, the system (100) resides in the user device (102). In yet another embodiment, the system (100) resides partly in the user device (102) and partly at the processor (104). The system of the present invention is configured to communicate with the user device (102) via one or more wired or wireless networks (110). As used herein, a user device (102) may include but is not limited to, a mobile phone, a smartphone, a tablet computer, a smart wearable device, a personal computer or any such device that may be obvious to a person skilled in the art. As used herein, the communication network (110) includes but is not limited to a short-range wireless medium and a long-range wireless medium, wherein the short-range communication includes, but not limited to, a Bluetooth, IEEE 802.11 protocol, an infrared, and ZigBee, and the long-range communication includes, but not limited to, radio access wireless networks such as 3G, LTE, 4G, etc.

Figure 2 illustrates a method to provide real-time FX risk management in accordance with the working of the present invention. In a preferred embodiment, the method (200) starts with receiving exposure data for a financial transaction, from the user device (102), by the input module (104a) to determine the FX risk management, at step 202. As used herein, the "exposure data" includes, but is not limited to, details of any payment with customers or suppliers and details of the credentials of the user. For example, the user may enter the payment amount associated with a payment transaction, along with the credentials of the user and the details of the payment amount.

At step 204, market data is received from the data storage device (106) by the input module (104a) based on the exposure data received at step 202. As used herein, the "market data" may include, but is not limited to, the live and historical FX rates such as spot and forward FX rates. In another embodiment, the present invention encompasses receiving any local regulations applicable to the calculation of FX from the data storage device (106). For example, the input module (104a) may receive the regulations and guidelines of financial authorities for calculation of the FX rates. Further, as an illustration, the system (100) may access the data storage device (106) for the FX spot value.

Subsequently, at step 206, the data received at step 202 and step 204 is processed by the calculation module (104b) for determining the FX rate applicable for the financial transaction and displaying the treasury performance against various budget FX rates. The present invention provides for determining the FX rate using the input from the input module (104a) including, the user exposure data, the market data and any applicable local regulations for foreign exchange, including any technique applicable to determining the FX rate. The present invention provides for determining the FX rate for the user including, but not limited to, any future or effective rates. In a preferred embodiment, the present invention provides for displaying the FX rate and treasury performance calculated by the calculation module (104b) to the user on the user device (102) by the output module (104d).

At step 208, the pricing values data representing pricing values is received by the input module (104a) from the financial entity (108) via the user device (102). The present invention also encompasses that the pricing module (104c) compares the pricing values data provided by the financial entity (108) with the market data. The pricing module (104c) displays the pricing values on the user device (102) using the output module (104d). For example, the pricing module (104c) receives the real-time pricing values available for a particular bank from the input module and displays a comparison with the live market data applicable for the same in a tabular format to the user.

Further, at step 210, the hedges data representing hedges executed in respect of the financial transaction with the financial entity (108) is received from the user device (102). As an illustration, the user may input the details of the hedges executed with the bank in respect of a payment transaction. The present invention encompasses that the calculation module (104b) validates the inputs and generates a list of errors, if any, in respect of the calculation of the FX rate and issues pertaining to applicable regulations. In addition, the calculation module (104b) generates a list of calculations in respect of treasury performance.

At step 212, the data received in steps 202, 204, 208 and 210 is processed by the calculation module (104b) for re-determining the effective rate for the financial transaction. For example, the calculation module (104b) may receive pricing values data and hedges data executed for the payment transaction, along with the exposure data, the market data and any applicable local regulations for foreign exchange, including any technique applicable for determining the effective rate for the payment transaction. In an embodiment, the present invention encompasses inputting at least one of a modification or a correction in real-time by the input module (104a) from the user device (102). Further, the present invention provides for the re-determination of the FX rate using the modified input data received from the input module (104a) including, any modified or corrected user exposure data, the market data, the hedges executed for the financial transaction, and any local regulations applicable for the determination of FX rate. As an illustration, the user may modify the hedges executed for the payment transaction to re-determine the FX rate for the payment transaction with a bank.

The present invention also encompasses the determination of at least one of the analysis of the pricing efficiency, impact on effective rate, comparison with budget rate and hedge efficiency score in respect of the FX rate determined for the financial transaction. In a preferred embodiment, the system (100) provides the determined analysis and evaluation of at least one of the pricing efficiency, impact on effective rate, comparison with budget rate and hedge efficiency score in respect of the rate determined for the financial transaction, including historical transactions, for the user device (102). As an illustration, the user device (102) may use the FX rate determined by the calculation module (104b) of the system (100) to analyze the hedge performance for the financial transaction and make future decisions.

At step 212, the method includes the display of the FX rate determined by the calculation module (104b) of the system (100) on the user interface/output display of the user device (102) by the output module (104d). The present invention encompasses the display of the pricing efficiency, impact on effective rate, comparison with budget rate and hedge performance in respect of the FX rate determined for the financial transaction in a predetermined format to the user device (102). As an illustration, the user may be displayed the comparison of the rate determined by the calculation module (104b) for the financial transaction with the budget rate of the user in a tabular format. In conventional systems, if a user wants to check the pricing for historical transactions, the user is required to look at a graph or download a series of values and search for their exact trade date and trade time in raw data. This is an extremely manual process and as a consequence, users find it extremely hard to do this unless it is for very large amounts/ specific situation. In FX conversions/ hedging, a user never gets an invoice of the charges applied by a bank. For example, bank will provide a rate of 74.00 for converting USD into INR. Bank will not say that the rate at that point in time was 75.00 while they only gave 74.00, thus applying a charge of 1.00. It is for the user to check and estimate manually.

In the system of the present invention, a user may upload multiple transactions through excel uploads and the system is able to search through millions of rows and deliver results in less than 1 second. As a consequence, it has become very easy for the user to check on what was the charge applied/ revenue booked by the bank and is thus able to negotiate better with banks. Further this upload facility is not just limited to spot conversions but is also available for forward transactions for multiple currencies, cancellations, early utilizations, rollovers, and the like, thereby covering all possible actions by the client forex markets. In addition, the system of the present invention doesn't just show the rate at that time, it further provides a split between spot and forward, and translate the Revenue booked into the home currency of the user.

It will be understood that each block of the flowchart illustrations and/or block diagrams, and combinations of blocks in the flowchart illustrations and/or block diagrams, can be implemented by computer program instructions. These computer program instructions may be provided to a processor of a general purpose computer, special purpose computer, or other programmable data processing apparatus to produce a machine, such that the instructions, which execute via the processor of the computer or other programmable data processing apparatus, create means for implementing the functions/acts specified in the flowchart and/or block diagram block or blocks.

These computer program instructions may also be stored in a computer- readable memory that can direct a computer or other programmable data processing apparatus to function in a particular manner, such that the instructions stored in the computer-readable memory produce an article of manufacture including instruction means which implement the function/act specified in the flowchart and/or block diagram block or blocks. The computer program instructions may also be loaded onto a computer or other programmable data processing apparatus like a scanner/check scanner to cause a series of operational steps to be performed on the computer or other programmable apparatus to produce a computer implemented process such that the instructions which execute on the computer or other programmable apparatus provide steps for implementing the functions/acts specified in the flowchart and/or block diagram block or blocks.

The flowchart and schematic diagrams illustrate the architecture, functionality, and operations of some embodiments of methods, systems, and computer program products for managing security associations over a communication network. In this regard, each block may represent a module, segment, or portion of code, which comprises one or more executable instructions for implementing the specified logical function(s). It should also be noted that in other implementations, the function(s) noted in the blocks may occur out of the order noted in the figures. For example, two blocks shown in succession may, in fact, be executed substantially concurrently or the blocks may sometimes be executed in the reverse order, depending on the functionality involved.

While the present invention has been described with reference to certain preferred embodiments and examples thereof, other embodiments, equivalents and modifications are possible and are also encompassed by the scope of the present disclosure.

Claims

WE CLAIM:

1. A system for managing risk in a transaction involving foreign exchange, the system comprising:

one or more processors configured to:

receive exposure data from a user device;

receive market data from a data storage device based on the received exposure data; and

process the exposure data and the market data to determine foreign exchange (FX) rate for a transaction - live as well as historical,

wherein the one or more processors are configured to re-determine the FX rate by determining a split between a spot rate and a forward rate, and

wherein the one or more processors are configured to determine revenue booked by the financial entity device, based on the determined split between the spot rate and the forward rate.

2. The system as claimed in claim 1,

wherein the one or more processors are configured to receive pricing values data from a financial entity device, and further configured to selectively receive hedges data from the user device, and

wherein the one or more processors are configured to process the pricing values data and the hedges data along with the exposure data and the market data to re determine the FX rate and the revenue booked by financial entity.

3. The system as claimed in claim 2, wherein the one or more processors are configured to provide, via a communication network, the re-determined FX rate and the determined revenue to the user device, wherein the FX rate and the revenue booked by financial entity is displayed by the user device.

4. The system as claimed in claim 2, wherein the exposure data comprises one or more of payment details associated with the financial transaction and credentials of a user of the user device, and

wherein the market data comprises at least one of: real-time FX rates, historical FX rates, and local regulations to be applied for calculating the FX rate.

5. The system as claimed in claim 2, wherein the one or more processors are configured to compare the pricing values data with the market data, and transmit the compared data to the user device, wherein the compared data is displayed by the user device.

6. A method for managing risk in a transaction involving foreign exchange, the method comprising:

receiving exposure data from a user device;

receiving market data from a data storage device based on the received exposure data;

processing the exposure data and the market data to determine foreign exchange (FX) rate for a transaction - live as well as historical;

re-determining the FX rate for the financial transaction by determining a split between a spot rate and a forward rate; and

determining revenue booked by the financial entity device, based on the determined split between the spot rate and the forward rate.

7. The method as claimed in claim 6, comprising:

receiving pricing values data from a financial entity device, and selectively receiving hedges data from the user device, and

processing the pricing values data and the hedges data along with the exposure data and the market data for re-determining the FX rate and the revenue.

8. The method as claimed in claim 7 comprising the step of providing, via a communication network, the re-determined FX rate and the determined revenue to the user device, wherein the FX rate and the revenue is displayed by the user device.

9. The method as claimed in claim 7,

wherein the exposure data comprises one or more of payment details associated with the financial transaction and credentials of a user of the user device, and

wherein the market data comprises at least one of: real-time FX rates, historical FX rates, and local regulations to be applied for calculating the FX rate.

10. The method as claimed in claim 6 comprising the step of comparing the pricing values data with the market data, and transmitting the compared data to the user device, wherein the compared data is displayed by the user device.