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International Treasurer

Our Focus on
Financial Risk
A partial rech ri stening
because financia l risk
management is fo r
everyone.

The Journal of Global Treasury and Financial Risk Management

june 12, 1995

page 7

Editorial comme nt

Compa ny profil e

Our Focus on
Financial Risk

HDS' Treasury and


Debt Management

HDS' Treasury and


Debt Management
B j oseph N eu

By j osep h Neu
Underscoring the role of fin ancial risk ma nagement in global treasury management.

W ith this issue, we change our subtitle to under-

Hita c hi Data Sys te ms, w ith stron g links to


Japanese treasury instincts, relates the cost of
funds, includ ing the FX co mpo n ~nt, as much
\
as possible to its operational objectives.

score our belief th at financial risk manage ment


wi ll co nti nue to move toward the ce nter of
globa l treasury. It wi ll find its way into every
H itac hi Data Systems (HDS) is a 80:20 joint
aspect of the treasury function, includ ing its ro le
venture between H itac hi (Japa n ) a n d
as the nexus between accounti ng, tax , operaEl ectro ni c Data Systems (US). The co mpany
tions, and financia l markets.
From derivatives to a company-wide underwas formed five yea r's ago w hen th e JV pa rtners bought w hat was then N atio nal Adva nced
standing of risk. It has been onl y 10 years since
derivatives have been viab le altern atives to w hat ' Systems from N atio nal Semi co ndu cto r.
A t t he time it was formed, HDS was a $1bn
in many cases was a "do-nothing" benchm ark
fo r ri sk management. Th e fu.1 i"~ m p li catio n s of
sta rt-up w ithout a treas ury ope ratio n. Ass ista nt
Treas urer Marsha Prentiss was o ne of the in ithe ir advantages, costs, purposes, and various
t ial hi res g iven th e " lux u ry" of setti ng up a
imp lementat iOQS are sti ll be in g worked and
treasury func tion for the j oi nt ventu re .
reworked, company by compa ny.
" Buil ding a treas ury fro m scratc h, you' re
And, of course, derivatives cannot be eva luatab le to get a ho ld of the busi ness at its roots
ed in isolation. Compan ies shou ld work to comand des ign a treas ury structures to match it,"
prehend the concept of ri sk more so than any
notes Ms . Prenti ss. Thu s, the im pact of treasury
specific derivati ve . Th ey shoul d also work hard
o n the busin ess is a key pa rt of all its activities,
to put thi s on the agenda outsid e of treas ury.
espec iall y debt ma nagement.
Fo r exa mp le, accou nt in g and tax need to
understand financia l ri s concepts in economi c
terms, so as to better align book and ta x treatTreasury organization
ments on hedges and -hedge more ri sks. Senior
Th e i nterna ti ona l si de of treasury i s very
ma nageme nt and th e Boa rd need to come to
important to HDS. It se lls and serv ices mainterms with the strategic co nsequences of fin anframe computers and data storage equi pment
cial risk decisions and help shape po li cies and
through 24 subs id iar ies in 44 coun tri es. 60%
contro ls accord ingly. Operating managers need
to comp rehend the ri sk impli cations of day-toof its ann ual sa les of $2bn co me from o uts ide
day business decisions, resul ting expos ures, and
the U S.
offsettin g hedges. A nd fin all y, Ba nks need to
Treas ury is o rga ni zed in two ope ratio n cente rs: o ne fo r HDS In te rn at io nal and o ne fo r
know the bus in ess to ta il or fitting stra teg ies.
More than the Treasurer ' s Guid e: O ne of
HDS Europe. H DS Intern atio nal's treas u ry is
ce nte red in Santa Clara, Ca liforni a. Its staff of
Internationa l Treasurer's obj ect ives fro m t he
seven is respo nsib le for overa ll debt po rtfo li o
start has been to assist readers in a practitione rmanagement; hedg in g; po li cy; and tax, lega l,
oriented ed ucational process. As treasurers work
now to pass alo ng their know ledge of risk to
and accountin g iss ues. It also ove rsees no nnon-treasury profess iona ls, we be li eve we can
European and no n-j apa nese t reas u ry ope ratio ns. Treas ury for H DS Europe, w ith a staff of
help them. Give you r co ll eagues a head starttwo is ce ntered in London. It is respo nsib le fo r
pass along IT.

continued on page 2

'

Linking treasury, and


especially debt management, directly w ith
business objectives. A
luxury afforded treasuries designed from
scratch.
page 1

-. ~

Hedging to Lockin Gains After Tax


By Jeffrey W allace

What.to consider
w hen th e CFO asks
treasu ry to lock- in
yen-related FX ga ins.
page4

The Financial
Revolution
A rev iew of The

Va nda ls' Crown, an


historica l account of
FX traders ' revolt
agai nst the world's
central banks .
page6

Earnings Risk vs.


Option P1emiums
By Joseph Neu

Un li ke forwards,
option hedges on
anticipated transactions can all ow corporates to avoid reporting interim mark-tomarket losses .How
mu ch is this worth?

pagel

Eligible Bills
Using Sterling BAs and
currency swaps for
cheap niche fund ing.

page8