How does a Foreign Currency Exchange Rate Affect my Business?

Foreign currency exchange transactions are often considered an afterthought by business owners, but the need for real time access to currency exchange rates has never been greater.

The foreign currency exchange market (Forex or FX) is one of the largest trading markets in the world. Its daily turnover is nearing £575 billion and it is over 300 times larger than the entire US stock market. This immensely liquid and volatile market means businesses that are involved in the buying/selling of foreign currency are often left exposed to a large currency fluctuation risk. Access to real time foreign currency exchange rate information addresses this problem.

Here are some examples of annual foreign currency fluctuation levels in 2006:

• GBP-USD (Great Britain pounds sterling to US dollars) 15.63% rate change
• GBP-AUD (Great Britain pounds sterling to Australia dollars) 8.25% rate change
• GBP-NZD (Great Britain pounds sterling to New Zealand dollars) 21.05% rate change
• GBP-EUR (Great Britain pounds sterling to euros) 5.33% rate change
• GBP-TRY (Great Britain pounds sterling to Turkey new lira) 36.37% rate change
• GBP-CAD (Great Britain pounds sterling to Canada dollars) 15.13% rate change
• GBP-INR (Great Britain pounds sterling to India rupees) 16.06% rate change

Can your business sustain a loss of these magnitudes should currency exchange rates move adversely?

Would access to a real time foreign currency exchange rate improve your day-to-day business dealings? For most businesses, the answer to this question is a resounding, "Yes".

 

Examining existing foreign currency exchange processes for your business

There are two main elements to consider when ascertaining whether your current foreign exchange systems and processes are adequately serving your business:

 

Foreign Exchange Spread

This is the difference between what the market is doing and what exchange rate the bank offers you. It is very difficult to accurately measure the foreign exchange spread without the correct tools. For the most part, if you are using a bank for your foreign currency exchange services you are almost certainly paying too much!

 

What can I do about an adverse foreign exchange spread?

Our consultants can help you benchmark your current foreign exchange provision and see what savings can be made. This free, no-obligation consultation will help ascertain which systems you need and what particular set-up will suit your type of business.

 

Foreign Exchange Risk

Is your business open to foreign currency losses? If you have not experienced them to date, is this just luck or is it good judgement?

It is a well known fact that 93% of internationally trading UK businesses have no plan to deal with exchange rates for foreign currencies. Furthermore, these businesses are not equipped to mitigate the significant risks foreign currency losses present to their bottom line.

 

What can I do about the foreign currency exchange risk?

Time should be set aside to actively engage a specialist to go through your foreign currency exchange pricing methodology and work out where the risks are within your current processes. Simple and very effective products can then be implemented to complement your current foreign exchange processes and reduce currency exchange risk.

In most circumstances our advisors can show you how to completely eliminate currency risk from your business.

If you would like to know more about our range of corporate finance services, contact us today on 0845 838 0936 or drop us an email.