Your Risk Score
Explained
Low Risk
0 - 55
If your risk score falls into this category, it means that you are likely managing your risk well, but that doesn't mean operational improvements are not possible to ensure that your foreign exchange exposure has minimal impact on cash flow, working capital and your bottom line. If your average size of trades falls below £50,000 market volatility will have marginal impacts on your currency conversions, however, a 1% move against you would equate to a £500 increase on the cost of a £50k transaction – so you might want to look at how to remove this possibility if that makes a difference to you. Receiving 3rd party payments can be problematic due to regulatory burden imposed upon banks however giving your clients the ability to pay in their local currency also has its advantages and can open new business opportunities. Being in the low-risk category would suggest that the currencies you are exposed too would fall in the major pairs classification such as USD, EUR etc. the fluctuation of exchange rates can be comparatively less than currencies used in emerging markets but over time the market rates can still move significantly. A low-risk score would also suggest that you have transparency on your currency exchange costs however this might not always be the case and knowing your exact exchange rate and all the costs of a transaction can give you a clearer picture of your annual expenditure allowing you to budget and adjust your pricing accordingly.
Medium Risk
56 - 125
If you fall into the medium risk category, it means you are likely aware of and managing your currency-related risk proactively, but there are probably areas that need reviewing. This is particularly the case if your annual exposure to foreign exchange exceeds £100,000 or its currency equivalent. Currency exposure can significantly impact your bottom line due to adverse movements in exchange rates. For larger transactions especially, timing is crucial as a 1% move within a day is not unusual even in major currency pairs like GBPUSD. Managing your future currency requirements using forward contracts is worth considering, as having certainty on conversion rates can help with budgeting costs for your business more accurately. This is even more important to consider if you are transacting in exotic currency pairs and /or working on small profit margins that could be completely eroded away by unexpected exchange rate moves. A medium risk score suggests a lack of transparency in exchange rate margins and total charges, for currency you exchange we can help you benchmark your costs so that you understand what a fair market fee level is you should be aiming to achieve. Using your bank for foreign exchange services can be time consuming and may incur additional transaction fees, potentially costing thousands annually. Alternative fintech solutions often offer better rates, but the service level is often not comparable with a specialist broker who can also be on hand to leverage their expertise to try and help you get the best possible outcome.
High Risk
126 +
Falling into the high-risk category suggests that you are trading over £1 million or currency equivalent per annum, with this level of FX exposure even a small % variance in the exchange rate could have a considerable impact on your business. With careful planning and use of currency hedging strategies the exposure risk when dealing in the FX markets can be reduced to near zero. The larger the transactions you make and the higher number of payments you send and receive make it more likely that you are exposed to non-market risks such as human error or even fraud. Changes in rules and regulations in different jurisdictions can also influence how and where you can do business. Counterparty risk becomes a bigger issue for larger companies and as we have seen over the past decade even the largest most prestigious banking institutions are not immune from making fatal decisions that put them out of business and their clients’ funds at risk. There are no simple solutions to some of these issues but ignoring them and hoping is not a strategy either. When it comes to moving funds internationally and managing the associated procedures its worth paying close attention to each aspect of your setup and being aware of potential changes that can cause disruptions and having a plan B if things go wrong. Experience and knowledge of the foreign exchange markets, banking systems and how technology advancements and industry best practice can be applied can help to mitigate your risks. Staying informed of economic news and market trends can also help give you a clearer insight into what is happening in markets how it could affect you and allow you to include that into your risk management planning.
your complimentary appointment
By gaining insights into your business we may be able to help by identifying market leading solutions that can reduce your overall risk measurement. We can also make moving money internationally safer and more efficient and cut your service provider costs.
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To receive a detailed review of your current situation and suggestions to streamline your treasury operations, schedule a bespoke FX audit with the team and leverage our knowledge to your advantange.
