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The Blog Team

Does your business use foreign currency? 6 Questions you need to ask.

Updated: Jan 30, 2023



1. What is my foreign currency purchasing strategy?

Hedge

If you are looking to reduce your risk and your business has a clear forecast of currency

requirements forward contracts are an excellent tool to cover your international purchases and reduce the risk of market volatility.


Spot

Buy as and when you need your currencies. This can give your business to access movements in the market that could help you increase you profit margins however if you need the cash there and then and the exchange rate is not in your favour this could cost your business more.


Market order

Plan for purchases in advanced and identify your exchange rate. This will give you the best ROI. Use automated market orders to hit your target price and utilise market volatility.

The downside to this is if your target doesn’t hit and you may find when you need to make

your purchase that you must pay a higher cost and reduce you ROI.



2. What impact would a 5% move in the FX market have on my business?

Although 5% market swings are quite rare in the major currency pairs, with the current economic climate there is the potential for black Swan events to occur like we faced in September 2022.

Sterling dropping 5.95% against the Euro and 8.75% against the Dollar in a space of 12 days. As part of your risk management plan it is important to ask the question; If this was to happen again, how would this impact my business?



3. How quickly can you re-adjust your pricing with suppliers or customers?

A challenging aspect of business is being able to adjust your pricing to compensate for the changes in currency exchange. Having processes in place that ensure timely adjustments can be made, means you can negate a reduction in profit margins preventing the need to pass on the added expense to your customers.



4. Can I accurately forecast my businesses currency requirements?

The answer to this can be found when looking at the sales history of your business.

If you are a well established business with constant repeat business, this will allow for more accurate forecasting for your currency requirements.

If you are a new business this is going to be more challenging without the data to support your sales forecasts.


5. Can my cash flow support my currency hedging requirements?

The standard industry practice when placing a forward contract is for a 5% deposit of your total order.

For business who’s cash flow is tight, 5% might be too much to tie up in a foreign exchange

forward contract.


6. What does good customer service look like when accessing the foreign exchange market?

Good customer service should be an extension of your team. Supporting and providing impartial advice whilst ensuring your business remains aware of current market movements and trends.

You should also have the option to if you want to trade independently using a customer interface that is simple and intuitive and provide real-time market rates.

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