Protect your business from the impact of currency volatility

    If your business sends or receives international payments, currency movement can potentially have a detrimental impact on your bottom line. HiFX provides international payments and FX hedging solutions for businesses; here, Chris Towner, corporate director, examines how you can protect your business from adverse market moves.

    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 struggle to manage their international payments effectively. Larger businesses may have many priorities that prevent them taking a strategic view on currency risk.

    But, while it may be tough to manage foreign exchange, the costs of failing to do so are potentially very high – especially given the uncertain times in which we currently live. For example, after the UK’s vote to leave the European Union, the value of the pound against the dollar fell 12% within hours. Three months later the figure had reached 15%. That can be devastating for a business with FX exposure.

    Asking yourself these questions could help to make sure your business is prepared, whatever happens next on the currency markets:

    Do you know whether you are exposed to foreign exchange risk, and how much?

    Many businesses, particularly at the smaller end, are not aware they have an exposure to foreign exchange risk. Even if they are, they may have never quantified the size of the risk they face. If you’re in that position, it is more likely that the impact of negative market movements will come as a nasty shock.

    Do you have a foreign exchange risk management policy in place?

    Having quantified potential exposures, the next step should be to set out a plan for managing this risk. Larger companies in particular could consider a risk management policy that details the company’s approach to foreign exchange risk – providing an ongoing framework for managing volatility, so that you don’t have to react on an ad hoc basis.

    Do you understand the breadth of products available to your business?

    Many businesses aren’t aware of the full range of foreign exchange risk management options available to them. Or they may think, for example, that any strategy other than buying the required currencies at today’s rates – the spot price – is getting into the realms of currency market speculation.

    Hedging, in particular, is widely misunderstood – and therefore rejected. But the idea of currency hedging isn’t to second guess how the markets might move; rather, it is an insurance policy to protect your business against the possibility of adverse movements.

    Are you overwhelmed by complex administration?

    Managing foreign exchange can be a time-consuming and expensive task. It therefore becomes even more difficult to take a strategic view of your activities in order to manage risk, enable proactive decision making and plan ahead. There are providers out there that can support you to function more effectively.

    Do you have a handle on compliance?

    You need robust processes in place to generate the information your foreign exchange providers will legally require in order to transact on your behalf. If you don’t, there’s a danger payments may not go through on time, potentially jeopardising relationships with suppliers and customers, or even adversely affecting your supply chain. Your cashflow may also be damaged.

    Have you shopped around for the best deal?

    Focusing on foreign exchange can deliver a range of benefits to your business, from enhanced value to better risk management. The key is to

    Chris Towner

    find a foreign exchange provider that can develop a bespoke solution that meets all your foreign exchange needs – including helping you to manage risk more effectively.

    The HiFX guide to managing currency risk examines nine foreign exchange mistakes your business should avoid, and how you can look to overcome them, in more detail.


    Download a free copy of the guide here: