Rates at risk – What can your business do in preparation for currency volatility?
Any business that deals with international payments risks their profits being heavily affected by movements in the foreign exchange market. Changes in an exchange rate can push up the cost of goods and services which can damage your profits, as well as making it more expensive to change a foreign currency back into sterling. Unless businesses have a strategic plan in place regarding foreign exchange they run the risk of their bottom line being damaged if 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. We therefore want to help others who don’t necessarily have knowledge of foreign exchange understand how they can prepare for unexpected movements. In this article we will look at:
Creating an FX policy
Following political and financial announcements
Relying on an FX specialist
Each of these elements can help your business be better prepared for currency volatility and ultimately ensure you profits are more secure.
What you can do
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. Different countries and organisations however release economic reports and projections daily any of which could in theory affect the market. Many businesses therefore choose to have a foreign exchange specialist who they can rely on to analyse the relevant reports for them and advise on foreign exchange transactions as a result.
Creating an FX policy for your business is also 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 about creating an FX strategy is to be disciplined in the way that you follow it. 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. That’s where we can help.
What can we do
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.
Another way to reduce the costs associated with foreign exchange is to ensure that you are getting the best deal on your foreign exchange solution. Currency//UK charge less than 1% on giving you a much more competitive exchange rate. We also 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.
Businesses are able to start the process of preparing for currency volatility themselves and a simple way to start is to be aware of what announcements both politically and financially could cause a shift in the market. By knowing when these announcements will happen it allows you to plan your payments accordingly. The most effective way however to keep your bottom line safe when dealing with orders and payments abroad is to use an FX specialist such as Currency//UK. The fact that we can use a forward contract to lock-in an exchange rate for you to buy or sell at means the stresses of currency fluctuations affecting your business will disappear. 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 click here to open a business account with us.