Many businesses are exposed to international markets in some way, this may be through buying raw materials abroad, selling their products in different countries or through foreign investment. For all of these businesses foreign exchange rates and profit go hand in hand leaving them extremely vulnerable to movements in the market.
Despite this, many businesses continue to take the risk of buying or selling foreign currency as and when they need it without taking into consideration any potential exchange rate fluctuations that may occur. This method leaves businesses in jeopardy of risking their profits, not being able to purchase materials or not being in a position to secure new business due to the uncertainty of costs.
Here are three key ways you can secure a desired exchange rate:
If you know that there is a particular exchange rate that your business needs in order to make your required profit, we can put in a market order which will automatically book a trade when the exchange rate hits a certain level. The benefit of this is that even if the exchange rate only hits the level you need for a matter of seconds, the order will still be put in.
We can also set a market order to work the other way meaning that if the market starts to move against you we can set a minimum level you are happy to trade at and the trade will be activated before the exchange rate dips below that minimum value. Ultimately Currency UK watch the markets so you don’t have to and are on hand to react to movements in the market.
If you know that your business will need a certain amount of a specific currency over the year and the exchange rate is currently in your favour we can lock in that exchange rate for you and enable you to keep buying it at that rate for the next 12 months. This means that even if the exchange rate were to rise or drop significantly due to political or financial events your business’ profits would still be intact.
For example one business we work with needs to buy $100,000 every month and we can use a forward contract to lock in an exchange rate for them. For a business buying Dollars with Pounds the lower the higher the GBPUSD rate the better as they get more Dollars for their money. For example, in April 2018 the GBPUSD rate was 1.3942, where as by December 2018 the rate had dropped to 1.2665. If they had not done a forward contract the $100,000 they bought in April would cost £71,725.72 where as the same $100,00 in December would have cost them £78,957.75. As there is no guarantee of how the exchange rates will move against them. Where as by using a forward contract the business only paid £71,725.72 every month for a year even though the exchange rate had moved against them.
Our forward contract allows customers to guarantee a rate for a future date, take advantage of favourable rates, protect your forecast costs/revenue, lock in bottom line profits.
Flexible forward contract
A flexible forward contract acts in the same way as a forward contract but gives you more flexibility over the time frame of the contract and when you need to pay for the funds. This particular product is perfect when buying goods or services with long and uncertain lead times, allowing you to have the currency you require to hand as and when you need it.
In reality, a flexi-forward eradicates the risk of your profit margins being wiped out by fluctuations in the FX market and the time wasted anxiously watching the exchange rate.
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. 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 or request a call back via our website.
Posted in Business Resources on Nov 8 2019