1. MOVING BUSINESS FORWARD
June 2014
business.westernunion.ca

2. WESTERN UNION 17% market share of cross-border money transfers
485,000+ Agent locations worldwide
Valued at approximately $8.6 Billion on the NYSE
# 445 on the Fortune list

3. WESTERN UNION BUSINESS SOLUTIONS
Communication
Process
Product
Systems
Payments
People
CURRENCY EXCHANGE
RISK MANAGEMENT
PAYMENT SOLUTIONS

4. Electronic Payments Solutions
Access to Western Union’s global banking network
Foreign currency payables and receivables in over 200 countries
No intermediaries
Increased speed
Reduced cost

5. Western Union Business Solutions
FX Risk Management Process
Mel Francis
June 4th 2014

6. Agenda Western Union Business Solutions Corporate risk Management
The Canadian Dollar
The FX Risk Management Process
Planning
Execution
Evaluation
Examples of Hedging Strategies
Conclusion
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

7. Corporate Risk Management
Controllable Risks
Foreign Exchange
Interest Rate
Credit
Commodities
Non-Controllable Risks
Competition
Economic Situation
Political Situation
Goal:
Transfer and minimize the controllable risks in order to decrease the negative impact on the profit margin.
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

8. Currencies – South America
Legal Restrictions
Financial Restrictions (Taxation)
Liquidity Restrictions
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

9. Canadian dollar– Historical 1 Year Graph
Thomson Reuters - June 2nd 2014
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

10. Where will the Canadian Dollar be one year from now?
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

11. Canadian Dollar - Economists Forecast
Bank Name
1 month
3 month
6 month
1 year
BMO
1.1050
1.1150
1.1250
1.1500
RBC
1.1000
1.1300
1.1600
CIBC **
1.1200
1.0900
1.0800 TD
1.1700
Scotia
1.1100
National
1.0950
1 month
3 month
6 month
1 year
Minimum
1.0800
1.0600
1.0400
1.0000
Maximum
1.1300
1.1700
1.2000
1.2200
# Forecasts 48 53 51
* Thomson Reuters - May 7th 2014
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

12. The New Reality of the FX market
The volatility of the Canadian dollar is increasing.
The competitiveness of the Canadian Companies is increasing.
Companies are looking to protect their exposures with a possibility of participating in favorable market movements.
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

13. FX Risk Management Process
*Forecast the FX exposure.
* Calculate the budget rate.
* Put a hedging strategy in place.
*Start executing the hedging strategy.
* Put orders in the market covering the long term needs
*Evaluate the efficiency of the hedging strategy.
EVALUATION (end of your fiscal year)
PLANNING (beginning of your fiscal year)
EXECUTION (during the year)
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

14. Forecast the FX Exposure. Determine a budget rate.
Planning
Forecast the FX Exposure.
Determine a budget rate.
Perform a Sensitivity analysis.
Perform a Client Evaluation.
Develop a hedging strategy in place.
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

15. FX Hedging Strategy % of Coverage Term Products Spot Forwards
Structured Products
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

16. FX Risk management Strategy
Client Evaluation
About the company
Who are your biggest clients?
Who are you biggest competitors?
What is the main challenge your business is facing?
What is your actual total Sales for 2013?
What is your forecasted total Sales for 2014?
What is your profit margin?
FX Exposure and impact
What was your total FX exposure for 2013?
What is your forecasted total FX exposure for 2014?
When is the end of your financial year?
When do you start your budgeting for next year?
Pricing Strategy
How do you set your prices?
Can you pass a negative FX move to your clients?
What are your payment terms with your clients?
What are your payment terms with your suppliers?
Budget Rate
What is your budget rate?
How do you set your budget rate?
What is your desired rate?
FX Risk management Strategy
What is your FX hedging strategy?
How do you evaluate your FX risk management performance?
Have you ever used Forwards?
Have you ever used Options?
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

17. Objectives of a Hedging Strategy
Protect the profit margin of the company.
Eliminate the majority of the controllable risks.
Respect the expectations of the shareholders or the partners.
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

18. Example for a seller of USD
The Canadian company is a seller of USD (exports to Chile but prices/invoices in USD)
Profit is 1M
Client has an exposure of 5M USD
Budget rate: 1.07
Client can change his price list every 6 months
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

19. Sensitivity Analysis Spot Rate Profit/Loss* 1.13 $300,000 1.10
$150,000
1.07 – Budget rate
1.04
$(150,000)
1.01
$(300,000)
* Based on 5M USD FX exposure (USDCAD seller)
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

20. Strategy
The proposed strategy is to protect a worst case scenario of (2% better than the budget rate) with a possibility of additional participation in favorable market movements, for a period matching his price list. Term : 6 months % coverage: 80% Products: structured products protection at 1.09 (locking an additional 2% of profit) with a participation in favorable market movements up to
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

21. Conclusion Don’t underestimate your FX risk exposure.
Have an FX Hedging strategy in place.
Don’t hesitate to contact your FX trader.
© 2014 Western Union Holdings, Inc. All Rights Reserved. Western Union Confidential

22. THANK
YOU
business.westernunion.ca