Bank of America hones in on FX risk

While new payments tools tackling a host of new problems come on board seemingly everyday, Bank of America Merrill Lynch has launched an offering that targets a long running risk that won’t go away: currency fluctuations.

Designed to take foreign exchange risk off financial clients’ hands, the risk management program includes guaranteed FX rates for up to 180 days for qualified clients.

“We began thinking about this offering a couple of years ago when we were working with a corporate client that was looking to take FX risk out of their treasury operations,” says Stephanie Wolf, the bank’s head of global financial institutions, governments and business banking. “They understood that their business was often significantly impacted by FX rates.  As we began to work with this client, we realised the solution could be suitable for any number of different clients looking to reduce their FX risk.”

Not every currency traded by the bank will hold the guarantee for the full 180 days, however, as the volatility of some exotics is more volatile others. Wolf confirms approximately 25 currencies will hold for 24 hours, with another 140 holding for at least that period of time. Still, the bank’s clients’ ability to essentially see out foreign transactions over a longer timeframe is an appealing offering, says Wolf.

“We’re offering certainty in an area where there is no certainty,” she says. “The client knows that any payments made are going to have a certain FX rate which leads to much more predictability, faster end-of-day reporting, and better reconciliation.”

The treasury product was launched on September 25, and aims to target a broad range of clients looking to remove currency risk from their operations. “The solution may not be relevant for all clients, of course,” admits Wolf.

“We have clients who are particularly adept at managing their FX risk, and we have others who hedge FX separately – outside of the everyday payment space – and there are others who for them this is such an insignificant part of their overall treasury operations that they’re really isn’t a need. Each client has a different preference.”

The offering was launched at Sibos last week, where a host of new payments solutions, products, and programmes featured. For Wolf, however, offering a broad approach for a variety of client types facing similar hurdles – in this case FX risk – is crucial.

The proliferation of payments alternatives was clear at Sibos. When you’re Bank of America and you operate in 37 different countries you want to be able to offer as many alternatives to your clients as possible. But at the same time – and I find this certainly with my clients – if there is too much choice then the client becomes a bit overwhelmed and chooses instead to sit on the sidelines and watch until Betamax or the DVD win – and once there’s a winner then clients think more about how to go forward,” she says.

“So this proliferation of payments alternatives requires us to place our investment resources on those that we think have the broadest applicability for our client base and this particular product does have the widest applicability across our client base.”

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