Protecting your business against FX risk
A guide for SMEs
There are a number of steps any company can take to reduce and manage their FX risk.
Define and understand your risk. How does a movement in the exchange rate affect your business? Before you decide how best to hedge your exposure, it is essential to understand what type of exposure you actually face. Most import and export businesses encounter ‘transactional’ risk, i.e. the risk that invoice costs will increase, or future cash flows will be reduced due to adverse exchange rate movements. Identifying risk as early as possible is important.
Plan ahead. What is your contingency plan if exchange rates move below a project’s budget level? Ideally companies should take a balanced approach, using a combination of spot and forward contracts. How and when to use products like these should be dictated by your company’s FX policy – which we can help you develop
Manage your risk. Once identified, it should be managed proactively. Whether your business needs to make ongoing payments or has to negotiate one large overseas contract, exposure to currency movement is inevitable. Don’t let FX management be an afterthought, as adverse rate fluctuations can disrupt months of planning.
Gather information from a variety of sources. Make sure you find out exactly what options are available to you. All Moneycorp Dealers are Members of the Society of Technical Analysts and, as experienced market traders, can help to ensure your company receives the best information and guidance available. We compile data from a number of sources, to give you a well-rounded view of the markets.
Do speak to a currency specialist. When it comes to foreign exchange, the first port of call for many SMEs tends to be the bank. The question is, how many other companies does your bank relationship manager have to manage? A currency specialist like Moneycorp can work with you to gain a full understanding of your requirements and will provide a personal, proactive service tailored to your business.
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