Operating a business in foreign markets presents several risks, such as navigating through different languages and cultural norms while having to deal with several currencies. Utilising an effective foreign exchange strategy not only mitigates this risk, but it allows a business to focus more time and energy on its actual operations and bottom line. We have compiled seven basic tips that should provide you with more confidence while navigating the murky waters of foreign exchange.
WHY YOUR BUSINESS MIGHT REQUIRE FOREIGN EXCHANGE
If your company has a client or supplier in a foreign country, it may be a beneficial decision to bill them or pay them in their domestic currency—making it much easier for your client. However, you now face the task of transferring those funds into or out of your domestic currency. If this is a process your company does often, minimizing costs and risk when doing this currency conversion is essential.
THE FOREIGN EXCHANGE MARKET IS CONSTANTLY MOVING
Every single day, the value of currency exchanged throughout the world accounts for trillions of pounds. This volume results in exchange rates that are constantly fluctuating, naturally putting your foreign currency at risk. All types of news, ranging from interest rate decisions to economic data announcements to political speeches and developments, have effects on exchange rates. Understanding this dynamic of the foreign exchange market is the first step in realizing the importance of risk reduction.
SPECULATING CAN RESULT IN BIG LOSSES
Predicting movements in the foreign exchange market is virtually impossible. Making predictions on when to transfer your currency can prove very harmful to your bottom line if the exchange rate does not go in your favour. Plenty of strategies exist, such as forward contracts, to minimise your exposure to fluctuation with certain currency pairs and bring stability to your bottom line.
YOUR BANK IS PROBABLY OVERCHARGING YOU
If your company operates in international markets with exposure to multiple currencies, there is a large chance you are being charged fees by your bank without even knowing it. Banks typically charge between 3% and 6% for money transfers, but a survey by YouGov revealed that 80% of small business owners were unaware of the scale of this cost. Currency specialists are not only cheaper, but they also do not charge hidden fees.
USING A CURRENCY SPECIALIST IS CHEAPER
Partner with a currency specialist, like Currency UK, and start bringing back more of your international earnings. A study conducted by Currency UK in 2015 found that a company using a currency specialist instead of a bank would result in savings of €3,327 per year when transacting €170,000 in Euros annually. Over time, these savings can add up to be substantial, and wouldn’t you rather keep your company’s hard-earned cash instead of the bank?
HEDGING STRATEGIES ARE AVAILABLE
The inherent issue with foreign exchange exposure is the constant risk involved with markets that are fluctuating every second of every day. With a currency specialist, you can lock in exchange rates to keep this risk off of your mind, allowing you to focus your attention on your business. Many firms provide a verbal agreement on a rate; however, Currency UK signs a legally-binding agreement that guarantees rates to a client. This allows trust and transparency between client and currency specialist, something that you do not get everywhere (no wonder we were voted ‘World’s Most Transparent Broker 2018’ eh?).
BENEFITS OF A LONG-TERM PARTNER
When in need of foreign exchange services, some companies and individuals shop around by calling several currency specialists and negotiating for the best rate. Business leaders should be spending time operating and managing their companies, and they should not be spending significant time going to multiple sources for the best rate—as there is usually only a marginal difference between brokers. A long-term partner for foreign exchange looks out for your long-term interests. In the case of foreign exchange, a long-term partner does not force a trade upon you to make a profit; the partner evaluates the situation and provides the best possible advice. This is the strategy that Currency UK employs, and that is one of the things that sets us apart.
Posted in Business Resources on Jul 9 2018