Case Study

Currency risk management brings an end to sleepless nights

Client Profile

A well-established UK bed manufacturer supplying furniture retailers in the UK while purchasing raw materials from Europe.

Scenario

The company imports the majority of its raw materials from Belgium, paying for the materials, services and machinery involved in the manufacture of its beds in Euros.  The company pays its suppliers monthly and has a regular currency requirement for nine months of the year.  Given the seasonal dynamics of the bed industry, production slows during Autumn, picking up again in December ready for the January sales.

The company had previously used its bank to manage all of its foreign exchange transactions and had already fixed forward contracts for a few months ahead.  This meant that despite knowing the projected imports for the year ahead, including seasonal trends, the company was exposing itself to unnecessary currency risk.

Solution

Taking advantage of the proactive service provided by Moneycorp, the company extended its forward contracts to cover foreign exchange exposure for a year.  With a regular monthly currency requirement this was straightforward and allowed them to cover the cost of their imports and to spread it over the course of the year.  By fixing forward contracts, the company was protected from fluctuations in currency markets and could manage cash-flow more easily.  In addition, Moneycorp provided information to the company allowing it to fix a rate at a time when Sterling was particularly strong against the Euro, which meant that the overall cost of their raw materials was reduced.

Benefit

Achieving an advantageous rate effectively helped the company to pay less for their raw materials, improving profit margins for the year.  Using the expert guidance of its Moneycorp dealer, the company created a longer-term foreign exchange strategy to integrate within its future planning.  Fixing its currency requirement in advance allowed the business to concentrate on other factors within the changing market place; as a result the company has seen increased growth and investment interest over the past year.

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