We’ve already seen how the global pandemic can affect foreign exchange.
Market volatility is always a risk for businesses that deal with international payments. Changes in an exchange rate can push up the cost of goods and services which can put profits at risk as well as making it more expensive to change a foreign currency back into sterling.
Nobody really knows what the next few months hold and how the markets will respond. But there are things that you can do now to mitigate risk and better prepare your business in the event of further market movements.
Developing a Strategic Plan
Businesses that have a strategic plan in place to manage their foreign exchange activity are better placed to navigate volatility and respond if,
or perhaps more likely in the current climate when, the exchange rate
moves against them.
After almost 20 years of working in foreign exchange our team of experts have helped many businesses mitigate the risk of currency fluctuations.
In our experience, ensuring you have a company-wide FX and payments strategic plan that covers each of the following 5 points will help your business be better prepared for currency volatility and ultimately ensure your profits are more secure.
1. Create an FX policy
Creating an FX policy for your business is a good way to minimise the risk of being caught out by movements in the market.
Having a clear strategy and clarity on your corporate objectives will allow you to align your FX strategy to match.
This policy should outline key figures such as cash flow, outgoings and target profit so that the FX strategy can be tailored to your business’ individual needs.
The most important thing is to be disciplined in the way that you follow your policy. Taking a chance with your business’ money in the FX market, hoping to make a quick fortune, from our experience always leads to problems. Instead, it makes sense to lock in profits in advance without the worry of the fluctuating rates damaging your margins. This is something our team can help you with.
2. Follow political and financial announcements
Knowing what events and announcements may influence currency is useful particularly if these events are scheduled to happen around a time when you are due to send or receive an international payment in a different currency.
Even a small fluctuation in exchange rates may mean that you end up receiving less income than you thought or underpaying a manufacturer. Some of the key events that cause movements in the foreign exchange market are political news, interest rate announcements and GDP reports.
3. Relying on an FX specialist
Keeping on top of all the information you need to know can be time consuming and difficult. Different countries and organisations however release economic reports and projections daily any of which could in theory affect the market.
That’s why many businesses choose to have a foreign exchange specialist like Currency//UK, to do the hard work for them. We can analyse the relevant reports for you and advise on foreign exchange transactions as a result.
4. Forward contracts
The best way to manage your currency risk is to guarantee a rate for a future date using a forward contract which is a type of hedging.
This gives businesses certainty that when they enter into a contract with a customer or supplier as they know exactly what their costs and revenue will be. This solution works particularly well when buying goods or services that have long and uncertain lead times.
With a forward contract through Currency//UK you can take advantage of favourable exchange rates and lock in your bottom-line profits, protecting yourself and your business when making international business payments.
5. Reducing costs
Another way to reduce the costs associated with foreign exchange is to avoid paying the fees charged by banks as well as their non-competitive exchange rates. Most banks charge between three and six percent which is all wrapped up into the foreign exchange rate they quote you.
Currency//UK charge less than 1% on giving you a much more competitive exchange rate. We also, unlike banks, won’t charge you £15 per international transaction. Instead your business can use our multi-currency accounts to receive and send funds saving you more money.
Remember, you’re not in this alone.
You can start the process of preparing for currency volatility yourself, the simplest way to do so is to be aware of what announcements both politically and financially could cause a shift in the market and plan your payments accordingly.
But, the most effective way to keep your bottom line safe when dealing with orders and payments abroad is to lean on us. Our job as FX brokers is straightforward; we mitigate currency risk for your business and make the whole process of foreign exchange as simple as possible, no matter how unusual the circumstances.
If you would like to find out more about how we can support your business with its foreign exchange requirements call us today on +44 (0 )20 7738 0777.
Posted in Business Resources on May 11 2020