BExA calls for greater FX Support for UK exporters
The British Exporters Association (BExA) has called for UK Export Finance (UKEF) to extend its range of products to provide much-needed foreign exchange support to UK businesses.
According to a British Business Bank report from 2016, the biggest challenge to UK businesses is exchange rates and this is a significant factor in them choosing not to export.
When it comes to UK exporters providing quotations these are often produced in dollars or euros to give a fixed price, while this is preferred for clients it does bring an added risk for UK exporters as the currency fluctuation risk is put on them.
Since the start of 2020, the GBP/EUR rate has been as low as 1.06 and as high as 1.20. Likewise the GBP/USD rate hit a low of 1.14926 and peaked in the 1.42s across the same timeframe. While these swings have been largely driven by the uncertainty surrounding the pandemic, other economic and political factors always pose a risk of causing market fluctuations.
It’s fluctuations such as this that are putting UK businesses off when it comes to exporting and while these market fluctuations can’t be stopped, the risks can be mitigated.
Although BExA is calling for more to be done by UKEF there are other resources and support options out there when it comes to UK exporters managing their foreign exchange. Products such as market orders, spot contracts and forward contracts can be used to buy funds at a specific rate and risk mitigation strategies can be put in place.
Many forward contracts are defined by a specific time such as 6 months or a year. This is perfect for businesses who know the amount of currency they require over a given time and when this has been agreed in a contract. Understandably this isn’t possible in every industry or sector and external factors can cause deliveries and as a result, payments to be delayed.
Flexible forward contracts can give desired flexibility alongside the other benefits of a forward contract. This protection from this constant variance, allows you to take advantage of favourable rates and lock in bottom line profits.
Flexible forwards work well on contracted payment streams that can be subject to change; however BExA highlights that they still obligate exporters to purchase foreign currency in the event they are unsuccessful on a tender.
BExA has proposed a solution to UKEF that accounts for both the timing and contract uncertainty risks. It’s support such as this that can significantly help UK exporters and why BExA is calling on UK Export Finance to do more to support exporters in overcoming this barrier to exports.
To find out more about how Currency UK can support UK exporters with their foreign exchange click here.