All businesses, large and small, with any exposure to international currencies can find it challenging to manage foreign exchange risk. Smaller businesses, immersed in the day-to-day operations of running their firms and lacking specialist staff, may lack the time and the expertise needed to get a handle on foreign exchange. Larger businesses may have many other priorities that prevent them taking a strategic view of currency risk. While it may be tough to manage foreign exchange, the costs of failing to do so are potentially very high all the more so given the uncertain times in which we currently live.
Introduction
In the aftermath of the UK's vote to leave the European Union, the value of the pound against the dollar fell 12 per cent within hours. Three months later the figure had reached 15 per cent*. That can be devastating for a business with FX exposures.
In fact, the world's foreign exchange markets are often volatile and sometimes extremely so. The reaction to Brexit was certainly unusually strong that 12 per cent one-day drop is a typical trading range for sterling over a whole year but far from unprecedented. In 2015, for example, the Swiss Franc rose by 30 per cent against the euro in a single day after the country's central bank changed a key policy.
HiFX supports more than 6,000 businesses a year, all around the world, as they manage their foreign exchange and plan ahead to mitigate the dangers of this kind of volatility. But many more are not confronting this challenge and making the same mistakes over and over again. In this guide, we set out to identify those mistakes, not least to help more businesses avoid them in the future.
This is not to suggest that all businesses face the same issues. Smaller businesses just getting started with international trade, whether importing or exporting, may be overwhelmed by the decisions they need to make and struggle even with short-term choices. Meanwhile, larger businesses may be more sophisticated, with basic systems in place to manage day-to-day currency transactions, but they often lack a clear idea of the bigger picture, or how to manage risk holistically.
Both types of business are vulnerable to many of the mistakes detailed in this guide. But the biggest mistake of all may be failing to realise that you're not on your own here for while parts of foreign exchange may be daunting, professional advice and service will help. Some businesses choose to get their support from their banks, but an increasing number are opting to work with specialist advisers such as foreign exchange brokers, which focus purely on currency.
In short, all businesses have an opportunity to learn from their mistakes and in this bumpy environment, now is the time to do so. This guide can help you start the process.
*Source: Reuters.
** Source: www.bankofengland.co.uk daily spot exchange rates against Sterling:
€1.3018 on the 22 June 2016 & €1.2254 on the 24 June 2016.
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HiFX Guide FX Risk Management
About HiFX
Built from experience of transferring over £100 billion, HiFX offer businesses of all sizes a unique mix of bank beating services and intuitive technology to enable you to manage your company's foreign exchange more cost effectively.
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