Hedging FX - Association of Corporate Treasurers

1 Webinar, 16thApril 2015 Hedging areElectrical engineersChemistsMechanical engineersMedical doctorsConsultantsBiologistsInspectorsGe ologistsAdvisors to GovernmentAuditorsOperations in 100+ countriesRevenue 100 Who is Intertek? revenue35%31%35%2014 2,093mEmerging markets make up 38%of Group analysis: Treasury ResponsibilitiesCentralised functionsDe-centralised activitiesCollaborativeExternal FundingTrade financeCorporate liquidity managementInternal fundingLocal liquidity managementCounterparty creditriskCustomer credit riskFX riskmanagementInterest rate risk managementBank account securityBanking operational efficiencyBankrelationship managementOperationalcashforecastingCorp orate fundingforecastingDebt investorrelationship managementWACC analysisTreasury SystemsFinancial / currencyregulationCash / profit repatriationThere is a centralised Group Treasury function.

2 However many activities take place within Group Policy Currency ObjectivesGroup Treasury PolicySafeguard the Groups financial assets from economic loss from fluctuations in foreign currenciesProtect margins on cross currency contracts and operationsTranslation risk is not hedged. This means that the Group s reported earnings on an actual currency basis are liable to fluctuation due to movements in exchange Risk Foreign ExchangeTypes of Currency ExposureMitigationofRisk Group Treasury assist Regional Finance Managers with understanding and identifying foreign currency exposures.

3 Group Treasury design risk management and/or Hedging solutions for identified risks . Group Treasury and Group Finance work together with regional teams to ensure correct accounting of foreign currency ToolsDerivativesapprovedbytheboard:-FXou trights(forward&swaps)-Futures-Options(n oreceiptofpremium)ProductinnovationFX Risk Risk ,Anyquestions?FX Risk management 2015 CME Group. All rights reserved. Hedging FX is changing April 16, 2015 Sandra RoExecutive DirectorHead of FX & Metals Research & Product Development 2015 CME Group. All rights reserved. Deep liquidity, strong record of growth and performance, most diverse products and world s most diverse derivatives marketplaceCME | NYMEX | COMEX | CBOT | CME EUROPE GLOBEXE xchange traded derivatives (ETD)CME CLEARING EUROPEC learing facilitation for CME Europe asset classesCME CLEARING (US)Clearing facilitation for all CME Inc.

4 Asset classesGLOBAL TRADE REPOSITORY SERVICES (Europe, US & Canada)CME DIRECT OR OTHER ENTRY METHOD INCLUDING; INDEPENDENT SOFTWARE VENDOR / PROPRIETARY SYSTEMCLEARPORTOver-the-counter (OTC) clearedTRADECLEARREPORT 2015 CME Group. All rights reserved. The reasons and results Electronificationis leading to trading innovation and efficiencies Regulatory pressures (Basel III, Volker Rules, EMIR) is causing banks to rethink prime brokerage, credit lines, and certain client relationships FX pricing and benchmark scandals resulting in a rethink of FX trading and existing conventions FX as an asset class is increasing participation from diverse client segments (non-bank financials, pension funds, small institutions, retail)

5 Increasing Hedging alternatives and venue choice for clientsThe OTC FX landscape is changing 3 2015 CME Group. All rights reserved. The benefits and value Anonymous trading with pricing and transaction cost transparency Diverse client base, diversified liquidity pool Education, data, and prices publicly available Concentrated liquidity into select settlement dates Centrally cleared counterparty risk mitigation Full service capabilities (by certain exchanges) from trading, clearing, settlement to reportingHedging Alternative: Exchange Trading4 2015 CME Group. All rights reserved.

6 EUR/USD Depth of Book and USD/CNH Futures Pricing 5100 EURUSD contracts equals approx. $14MM and 10 USDCNH contracts equals approx. $1MM 2015 CME Group. All rights reserved. FX Transaction Costs6 2015 CME Group. All rights reserved. CME FX Futures Average Daily Volume and Notional ,000200,000300,000400,000500,000600,0007 00,000800,000900,0001,000,0001,100,0001, 200,0001,300,000 Notional Value (in billions of dollars)Average Daily Volume (in contracts)EUR 39%YEN 21%GBP 12%AUD 10%CAD 6%CHF 6%Other 6% 2015 CME Group. All rights reserved. CME FX Options Average Daily Volume and Notional ,00040,00060,00080,000100,000120,000 Notional Value (in billions of dollars)Average Daily Volume (in contracts) 2015 CME Group.

7 All rights reserved. CME Group s FX User Base: Diversified & Growing9400 contracts equals approx. $60MM in majors and 100 contracts equals approx. $10MM in EM 2015 CME Group. All rights reserved. Our respond to client demand Concentration on expanding product suite to increasing emerging market currencies Expand tenor offering to weeklies, monthlies, and potentially dailies to meet OTC Hedging needs Increase participation down futures curve: Majors, RUB and BRL out to 7 years currently Participation and administration of benchmarks (Russian Ruble, Silver Price and others) Find solutions to FX market and client problems.

8 Hedging solutions, credit mitigation, counterparty risk mitigation, settlement Launch OIS-STIR Futures with same expiry as FX to allow trading of FX Forward basis and allow cross asset marginingFuture, Potential New Initiatives 10 2015 CME Group. All rights reserved. Ready to help CME Group FX Futures and Cleared OTC Products: Clearing (USA): Europe Limited: Clearing Europe: Group Resources11 Sandra RoFX and Metals 203 379 3789 Paul HaileyCommercials & Corporates Sales & 203 379 3724 2015 CME Group. All rights reserved. Thank you 2015 CME Group. All rights reserved.

9 Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who areECPs within the meaning of section 1(a)12of the Commodity Exchange Act.

10 Swaps are a leveraged investment, and because only a percentage of a contract s value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted toany one trade because they cannot expect to profit on every research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its Group is a trademark of CME Group Inc. The Globe Logo, CME, Globexand Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc.