By John Rush
Banking and finance is full of complex products and financial transactions that can really make your job difficult to do well.
You want to be able to simplify things as much as possible and one of the best ways of doing that is to “visualise” your transactions.
John R. Rush, an international financial markets consultant, tells us:
“In managing any financial markets transaction, there are only two basic questions to answer. Each question involves a simple dichotomy. The questions are:
1) Is the subject currency of the transaction your base currency or a foreign currency?
2) Is a subject cash flow a payable or a receivable?
Looking at Question 1 first, you can describe your base currency in terms of a particular standard colour and any foreign currency in terms of another standard colour.
So, basically there are then only two basic colours to consider in describing any financial transaction (and, in particular, a foreign exchange transaction).
Looking at Question 2, you can assign “arrows” such that an arrow pointing “in”, or towards, the subject company represents a receivable and an arrow pointing “out”, or away from, the subject company represents a payable.
Now, any financial transaction you encounter can be described by its constituent cash flows being:
1) base or foreign currency
2) “in” or “out”
at particular points in time (either now or in the future).”
What John has just described to you is the foundation of the “arrows methodology”, a methodology that has general applicability in describing any financial transaction in terms of simple colour-coded directional arrows.
This way of describing financial transactions (such as your foreign exchange transactions) is a simple way to visualise the foreign exchange exposures you may face in your job or your career.
Learn more about how to manage your foreign exchange exposures from Ethan Hathaway’s Treasury training courses.
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