something to smile about? - Euromoney Institutional Investor PLC

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Facts&figures30 Managing RiskThe volatility is self-evident by the see-sawingwe’ve seen in the currency markets and the scaleand speed of the moves during 2003.34 Managing CashBanks are changing their approach to lending.They focus on the most efficient use of their equity,so in the future, bank borrowing will be a lessattractive source of funding compared to CP.38 Treasury LocationMuch of Glasgow’s growth and success can bedirectly attributed to a flexible, stable andmotivated workforce with highly developed skillsfor the treasury shared service centre.42 Cash & TechWith the corporate treasurer under increasingscrutiny, and with increased certification, peoplewant to know where their cash is.43 Legal BriefSarbanes-Oxley is a well intentioned piece oflegislation. But the cost and time necessary toimplement and certify compliance with theprovisions is much greater than first expected.44 M&A & Fee Analysis47 FX Forecastscorporatefinancemag.com March 2004 cf 29
MANAGING RISKFX FORECASTER OF THE YEARHow accurate areFX forecasts?Every month financial institutions across the UK provide CFwith their FX and interest-rate predictions. But how accurateare they? Jason Eden analyses the submissions for 2003 andreveals who is CF’s FX Forecaster of the Year.METHODOLOGYThe methodology consists as follows:Each month the participants forecastwhere the spot rate will be in 3 monthstime. We have taken the mid-month spotrate for each applicable month andawarded the 10 nearest forecasters pointsstarting from 10 for a first place, down toone for 10th place. CF chose to rankforecasters by total points, not averagepoints, hence rewarding those who havebeen most diligent in providing forecastseach month.The past 12 months haven’tbeen easy for FX forecasters.The war in Iraq, SARSand only a fledglingrecovery of the world’seconomies have kept many of them ontheir toes.But, judging by the results of theanalysis of FX forecasts published in CFduring 2003, some of the forecasters outthere have done a damn good job,despite these difficulties. (Some, to befair, have done a pretty poor job, butwe’ll leave you to work out who has eggover their face).So, the results are in and for the firsttime in four years, CF is pleased toannounce a new titleholder of its FXForecaster of the year trophy. Or, to bemore precise, two new titleholders.Royal Bank of Scotland’s (RBoS) forecastingduo Neil Parker, marketingstrategist for G7 countries, and AdrianSchmidt, senior currency strategist,have toppled Societe Generale’s BobEveling from the top spot he has heldfor the past three years.“We are very pleased to be numberone. We believe it is due, in part, to theclose working relationship that Adrianand me have at RBoS,” says Parker. AndRBoS deserves its place at the top of theleague table. Not only was it the overallwinner, but it placed first in cable and €-JPY – two currency pairs that saw someserious volatility during 2003 - and finishedin the top five of all the currencypairs we categorised in our leaguetables. “RBoS would expect to do verywell in cable, as it is our home market.We feel confident in predicting whatdrives this currency pair,” says Schmidt.A volatile market - maybeDepending on which forecaster youtalk to, 2003 was either a very volatileyear or pretty flat. Such varying viewsmay explain the array of forecasts CFreceives every month.“Volumes were massive in 2003,”says Trevor Williams, chief economist,financial market division at Lloyds TSB,“largely due to the volatility.” AndWilliams predicts 2004 to be as interesting,and busy, a year. “Theglobalisation of the world economymeans an increase in trade, and withChina and Russia joining in, capitalOVERALL BEST FXFORECASTER BANKTotal Frequency AveragePointspointsRBoS 236 36 5.88Lloyds 228 37 6.16Societe Generale 222 42 5.42SEB 203 28 7.25Commerzbank 201 37 5.43UBS 184 33 6.90Citigroup 181 28 6.46AMEX 168 23 7.30CSFB 137 24 5.71markets expanding and volatility rising.”Parker agrees: “The volatility isself-evident by the see-sawing we’veseen in the currency markets and thescale and speed of the moves during2003. Moving forward, we’d expectvolatility to be high this year as well,although perhaps slightly lower thanlast year. Moves will remain abrupt andlarge by recent historical standards.”Bob Eveling, senior vice president,FX and derivative sales at SocieteGenerale, disagrees with both Parkerand Williams: “Volatility levels becamerelatively flat as it became obvious theUSD was a one-way bet, i.e. it would godown. Apart from brief flurries onprofit-taking driven orders in general,volatility was quiet.”USD weakeningFor most analysts, developing a weakeningdollar strategy was the key to asuccessful 2003. Parker, for example,30 cf March 2004 corporatefinancemag.com
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