How to minimise the impact of exchange rates on your business

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Duncan Higgins is a senior analyst at Caxton FX, a foreign exchange company. CaxtonFX can assist all businesses mitigate the effect of varying exchange rates and help you get the best value from your currency exchanges. Today, as a guest on TameBay, Duncan talks about how fluctuating currency exchanges can affect your business with some suggestions of how to minimise their impact.

Reducing the risk of exchanging currency

Businesses need to assess all risks to the stability of their operations, but one factor that is often overlooked is the volatility of currency exchange rates. In recent recessionary times, the currency markets have been turbulent and for companies receiving payments from overseas the shifting exchange rate can have a significant impact on profit margins.

Similarly, it can be particularly tricky for online businesses to budget for stock that needs to be paid in euros or dollars if they have little or no knowledge of potential currency movements. It seems that all the governor of the Bank of England needs to do is utter the words “quantitative easing” and the pound drops like a lead weight. There is a good reason for businesses to take an extra couple of steps where possible to reduce the uncertainty of making international payments.

Merely keeping an eye on the currency market is a sensible starting point for any business. There are numerous daily reports available that provide updates and “advice” on the currency markets. These are predominantly free of charge and can be delivered straight to your inbox. A little information can enable your business to take advantage of buying foreign currency when the exchange rate swings in your favour. There’s nothing worse than having to buy stock when sterling’s floating around the doldrums of a one-year low.

When buying foreign currency, avoiding your bank is normally a good move. The banking monopoly in this field is fast diminishing and businesses can find much cheaper, personalised, and often more efficient services from currency exchange firms. These enable your business to avoid dated transfer fees and airport style exchange rates. For businesses with a regular requirement for foreign currency, uncompetitive rates and transfer costs quickly add up.

If you’re ordering stock for the Christmas selling season in July and want to limit your exposure for when you come to pay in December, you can always take out a forward contract. A foreign exchange company will allow you to set the exchange rate for the day you need to make payment anything up to 12 or even 18 months in the future. This means you can budget for the exact amount you’ll need to pay when invoices become payable.

Foreign payments are often overlooked when it comes to budgeting, but with relatively little effort online businesses can give themselves an advantage by reducing the risk of violent currency swings and cutting the costs of making international payments.

11 Responses

  1. “When buying foreign currency, avoiding your bank is normally a good move”

    Try telling that to the thousands of people who lost out when Crown Currency went bust last month

  2. “A foreign exchange company will allow you to set the exchange rate for the day you need to make payment anything up to 12 or even 18 months in the future.”

    of course they do this because their
    charitable lol

  3. Years ago I had a responsibility in a Company for paying our suppliers many of whom were abroard. I found that watching the currencies like a hawk and paying when the currencies exchange rates were favourable worked wonders. One year I made more profit from currency rates than the company did from manufacturing and selling its product. I often had to pay invoices early or in a volatile market pick the exact moment when the currencies were favourable. That was 30 years ago but it could work again these days.

  4. “One year I made more profit from currency rates than the company did from manufacturing and selling its product.”

    cant see how! unless you were buying and selling money,the firm would need to have a product to sell, to gain advantage of the currency flucuations

  5. It was quite easy but it involved a lot of hard work. We were buying many raw materials and components abroard. Making our product and then selling at home and abroard. As Works Accountant I had as one of my responsibilities paying all foreign currency invoices. At the time I had to take all the paperwork for a foreign payment to the Bank for them to scrutinise. This was often in excess of a hundredweight. But if I was ready to roll I could take advantage of currency fluctuations. The company had an “Official” currency rate so that all foreign transactions could be converted into sterling. If there was a big differance between the “Official” and Actual it was either credited or debited to me. So if I was careful I could pile up a good “profit” on foreign transactions. Trouble was it was not taken into account at the end of the year in Salary considerations so it did not mean money in my hand but I was still proud of my achievements as nobody else in a similar position in the company had achieved anything like.

  6. Anyone that buys commercial stock outside the UK suffers from currency flutuation problems.

    Unfortunately, a far as we are concerned, some flutuation has to be built into the prices we sell for.

    The US dollar is now about 5% +/- lower against a year ago, when it was went down to 10% lower.
    We hold good stocks of most items & thankfully were able to hold off larger orders till recently.

    Our FX Co gives us good rates & they make a bit too.

    PS: Got to go, got a bloody Container to strip bear!!.

  7. Yes I always wonder when I see all those traders with their screens etc in those dealing rooms.

    Who pays their commissions, does the man in the street end up paying it, or is it just the buyers and sellers.

    I think currency speculation should be illegal.

    Watch oil going up again !

  8. I find myself wondering if several have got the wrong idea of what I was doing. We had bought say 100,000 US Dollars worth of bits. Our contract with the supplier specified that we had to pay in 30 or 60 or in some cases 90 days(we had several suppliers in this category). But as we were buying just about every day it is obviously out of the question for us to be putting through payments every day(at that time in the 1970’s the rules were a pain). So we paid in bulk. It was up to me to pick when. So every day I checked the currency rates. By following the trends I could pick exactly(or as near as possible) the best time to pay. This always meant when the rates were favourable. How is that gambling? If it was on a horse race I already knew the result!! We had to pay the 100,000 Dollars so we might as well get the best rate. So I was ready to roll with all the vast amount of paperwork(often over a hundredweight for a simple payment) and all the forms completed ready to take the whole lot to the Bank. Officially the Bank had to scrutinise it. In reality they just rubber stamped it and a couple of hours later I went back to the Bank to get it all back. There was no gambling involved. When the transaction appeared in the Books there was a large Currency Variation noted which was my “profit” on the transaction. I could have just paid on the due date although as we were buying every day each transaction had a differant due date. So any date was a compromise so I might as well make it a date that was advantageous to the company.



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