FX Hedging in the Age of Big Data and AI Absa | Corporate and Investment Banking > Insights and Events > FX Hedging in the Age of Big Data and AI Aphile Molefe Head of eFICC Sales Absa CIB SHARE Digital technologies like AI and machine learning highlight why corporate treasurers need a data-enabled FX provider. Disruptive technologies like big data analytics, machine learning and artificial intelligence (AI) may be ubiquitous in our everyday lives, but they take some time to reach corporate treasuries. When it comes to their FX risk management, that’s slowly changing – and not because the treasurers use them directly, but because they are available through their banks. One example is advanced trade analytics tools that allow foreign exchange (forex, or FX) salespeople to build up-to-date reports on the fly while also including machine learning modules that can predict a whole range of client behaviour based on prior history. ‘Treasurers want to feel like their FX salesperson knows their story, what they need, how and when they need it,’ says Aphile Molefe, Head of eFICC Sales at Absa CIB. ‘This is very difficult to achieve when you’re dealing with a large bank that has thousands of clients. But with data technologies, FX sales desks are equipped to more accurately and timeously support the corporate treasurer in managing FX risks.’ Data tools can also tell the salesperson which of their clients can be expected to trade on that day, right down to the exact hour they are expected to ask for pricing. ‘The inverse would also be true where it knows if the client has done something it didn’t expect, like a new tenor, or currency pair, or ticket size,’ Molefe says. ‘With historical market data included – like historical tick data – it can also predict client behaviour in certain market conditions, such as rapid changes in prices, or even activity around a specific level. Absa is rolling out one of these platforms so that our sales traders can be more informed about which clients they need to engage with and what they need to engage about. This enables proactivity, which is a key element of client-centricity.’ The Power of Data-driven FX Insights Big data analytics is great at giving insights about a population of clients based on how they interact with the bank. But what about the specific reasons the client needs to interact with the bank? ‘You can imagine big data analytics giving a clothing store manager insights about the people that come to his store or website,’ says Molefe. ‘But with some clients, the store manager needs to know the client intimately in order to recommend products that match their specific style and requirement at that point in time. ‘In the FX sales world, the art of knowing a client’s specific requirement is known as risk or exposure analytics. Risk analytics for corporates includes knowing about the client’s hedging requirement, current hedge ratios and how that compares to their hedging policy. Taking it a step further, what if salespeople could simulate how certain market levels would impact that company’s profit and losses – firstly, if they do nothing, and secondly, if they transact proposed trade ideas?’ He adds that this sort of tool can transform how a corporate treasurer interacts with their FX bank because they can better collaborate with the bank based on relevant and easy-to-understand information. The Future of AI in FX Banking AI, being technology that imitates human behaviour, is widely used for work like photo editing and text-to-speech generation. The promise of AI in financial markets and banking in general takes various forms, but the most prevalent is with generative AI being used in chatbots in particular. In FX risk management, however, these use cases will take time to materialise. There’s an important reason for that. ‘Financial markets are heavily regulated,’ says Molefe. ‘FX is high-risk. Clients can trade up to millions of dollars per transaction. Considering this, in the current environment it would be dangerous to leave an algorithm to engage with clients at the expert level required. If something does go wrong, who would be accountable for any losses incurred?’ Even with these concerns, AI has entered the FX banking space for other use cases. ‘At Absa, we have implemented AI to support our relationship teams with tasks like summarising meeting notes and preparing presentations,’ Molefe says. ‘These use cases are still helpful in that they lead to more efficient and effective client engagement.’ The future holds promise for even more. Molefe sees a scenario where generative AI becomes increasingly ubiquitous and corporate treasurers engage more frequently with ‘competent’ chatbots. ‘This could transform how they interact with the bank, with research and market colour being autogenerated,’ he says. ‘Perhaps they’ll only engage the sales team on larger and more complex asks.’ Ultimately, Molefe says, data-driven digital technologies will continue to dramatically change the corporate treasurer’s world. ‘Data has proven to be very powerful as a value generator,’ he concludes. ‘To a thoughtful treasurer, the benefits of big data analytics and machine learning in the dealing room are clear. Collaborating with a data-powered dealing room can ensure a more client-centric service, with proactive salespeople who also recommend bespoke and well-informed strategies suited to meet the specific treasurer’s objectives.’ Aphile MolefeHead of eFICC Sales Absa CIB https://cib.absa.africa/wp-content/uploads/2020/07/file_example_MP3_700KB.mp3 Related Articles RISK MANAGEMENT Benchmark Reform | Assistance with publications On 29 November 2024, the Market Practitioners Group published three significant consultation papers, based on the recommendations of various working groups. The Read more RISK MANAGEMENT 2024: The Year in FX Ross Long, Head of Foreign Exchange for the Absa Group, reflects on the factors that shaped FX markets in 2024 and how they influenced the value of the rand. 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