How do I protect my business from exchange rate movements?

Planning, managing and reviewing a foreign exchange strategy to counter risk and boost bottom line profit


Mark Deans, corporate dealing manager at Moneycorp, answers:

Exchange rate fluctuations are notoriously difficult to predict and budget for. Companies trading internationally risk the erosion – or even elimination – of their profit if the markets shift against them. But there are a number of ways to protect your business.

Plan ahead: You can manage your foreign exchange risk by setting a budget for the year which factors in the number and likely timing of transactions along with a realistic assumption of current and future rates. Foreign exchange specialists analyse past trends and can provide advice on this.

Assess your risk appetite: How much risk you are prepared to take is likely to depend on your company’s objectives as foreign exchange exposure has an impact on your bottom line and the higher the volume and value of transactions, the higher the associated risk.

Review your foreign exchange policy: You need to be flexible enough to adapt your policy in line with the changing nature of the markets, so review on a regular basis.

Carry out your research: It’s worth utilising the expertise of experienced market traders for guidance. Look at those that are MSTA (Members of the Society of Technical Analysts) qualified.

Build a clear strategy: Spot and Forward contracts and market orders can either work together or individually as part of a foreign exchange strategy. Your foreign exchange dealer is well placed to make suggestions based on your budget and the timing of your transactions.

Get the timing right: Being well informed enables you to take advantage of the positive movements and to guard against the negative shifts. Your dealer can help you get to grips with this.

Don’t gamble: Once you’ve got a strategy in place for foreign exchange markets, be aware that abandoning it will increase your risk. Dealers can advise on adjusting the strategy without necessarily increasing your risk exposure.

Consider online payments: Managing international invoices and processing payments can be a time drain; online systems can automatically check bank details and store for future use.

Manage your business relationships: Suppliers appreciate being informed when payments are authorised. You can use payment tracking services that automatically email when a payment has been sent.

Communicate and monitor: Some reporting tools enable you to track deals, payments and your progress against your strategy. Using tools like this and communicating internally and with your dealer can keep you on top of foreign exchange.

Mark Deans is a corporate dealing manager at Moneycorp, which has provided foreign exchange services to help companies manage their risk since 1979. In 2011, Moneycorp traded £11.1bn in currencies on its clients’ behalf. Mark, who has spent a decade in the industry, regularly contributes to national newspapers and provides expert opinion on currency markets. For more tips from Moneycorp visit http://www.moneycorp.com/toptips/ 

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