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TreasuryFunction of

InfosysCTCRM Assignment

Lalit Jain, Roll No - 75


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Treasury Management at Infosys

The whole of finance function of Infosys is centralised in Bangalore, India which is theheadquarters of Infosys. There is a collection account in most parts of the world where Infosys

have operations. Those collection accounts are used to make payments in the local marketsand hence minimise the currency risk. The surpluses in those collection accounts are pooled ona regular basis and transferred to India. Most of our cash surpluses are kept and invested inIndia. The long term direction for the Indian currency is to appreciate and also the interest ratesin India are high. So, it makes sense for Infosys to keep surpluses in Indian rupee denominated.

For every 1% movement in the Indian rupee to US dollar rate, there is an impact of around 40basis points on the margins. Infosys have an active treasury department. In the last one year, ithad seen greater amount of volatility in the currency markets. Infosys has taken a view that in avolatile currency environment, there is no point in taking a long-term view on the currency. So, ithad taken a decision to cover our net exposures up to two quarters at any point of time. Thishelped Infosys to considerably reduce the impact of currency volatility on the net income.

Close to 98% of its revenues comes from exports and being denominated in foreign currencieswhile most of the development activity happens from India and the costs are denominated inIndian rupees. So, Infosys carry a higher degree of currency risk. Roughly, 23% of our revenuescome from Europe and hence it carries a considerable amount of cross currency risks also apartfrom the Indian rupee to US dollar risk.

Infosys have a collection account in most of the geographies they operate and they pool all thesurplus money after incurring the local expenses into India. Most of the transactions happenelectronically and they have built systems to manage that.

Infosys do hedge its foreign exchange exposures through a variety of instruments including the

forward contracts and options. They do both plain vanilla and structured options. They hedgetheir exposure to Indian rupee to US dollar and also the cross currency exposures.

Infosys have built a great team for treasury operations. In the last two years, when the worldsaw extreme volatility in currencies, Infosys managed it well by making sure that the impact onthe net income was minimal. In fact, in the whole industry, Infy managed the currency volatilitymore efficiently.

Infosys had greater focus on reducing the Indian rupee to US dollar volatility in the past and hadbeen less active on the crosses. However, they have started very actively hedging our crosscurrency risks. Being a company registered in India, they had certain restrictions on whatinstruments we can use for hedging our currency exposure and the quantum they can cover.

They are working with the regulators to remove some of these impediments to business.

The challenges in treasury are that the business is becoming more and more global whichbrings with it more complexities. Whether they like it or not, currency markets will remain highlyvolatile in the near future. The regulations are becoming more and more rigid and compliancehas become more rigorous. So, Companies have to keep evolving and keep adopting the bestpractices to make sure we are ahead of the game.


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Risk Management in Infosys:


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lalitjain_rollno75_ctcrm_mba-2011-14 (4)

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