3 Effective FX Management Tips For Businesses With International Exposure

FX

UK businesses are increasingly looking out for opportunities beyond our borders as Brexit negotiations continue in the background. Some businesses are looking for opportunities to sell their products and services to buyers in other countries, manufacturing businesses source for raw materials from foreign countries, retail stores source for finished goods from overseas, and service companies are not left out as they outsource some of their tasks to professionals in other countries.

However, the exchange rates between the Pound Sterling (GBP) and other currencies such as the U.S Dollar (USD), Euro (EUR), and Japanese Yen (JPY) is in a state of constant flux. Many smart business owners now look beyond UK banks for their FX needs. Resources such as the money transfer reviews for 2018 helps property buyers, expats, and small businesses find tools for transferring money internationally with no hassle, no fees and great rates. This piece provides insight 3 tips that you can use to manage your forex transactions to improve the odds of profitability for your businesses.

1. Know Your Level Of Exposure

Many businesses unwittingly allow cash flow patterns to determine when make foreign exchange transactions – hence, they usually end up making their forex payments at the prevailing spot price. Understanding the level of exposure of your business to foreign currency transactions can help you make proactive FX decisions. For instance, a business planning to buy a large order of raw materials within the next three months needs a different forex strategy from a business that doesn’t expect to be paid in foreign currency until the end of the year. Understanding your level of exposure can also help you know whether you should buy/sell currencies at the spot price, with market orders, or with forward contracts. A clear understanding of your FX exposure can also help you know if the rates you are being offered will be profitable and sustainable over the long term.

2. You Don’t Always Need A Complex FX Strategy

The forex market is by nature complex and volatile; hence, trying to trade forex with complicated hedging tools might exponentially increase your currency headwind risks. Many small business owners get carried away with the thrills of “forecasting” the forex markets correctly and booking unusual FX gains. Hence, it is common to see small business owners trying to set up complex forex trades such as the shark attack system, CCI divergence breakout, and multi-timeframe market analysis. However, the fundamental reason a business owner enters the forex market is to obtain better FX rates than the obtainable interbank rate. Hence, a simple forex strategy is often enough to get the best out of the market – attempting to play the FX markets like a professional trader is often a recipe for precipitating huge business losses.

3. Understand The Distinct Risks Of FX Trading

All businesses are subject to different kinds of risks but businesses with international exposure have an extra layer of market risk with currency headwinds. For instances, businesses that keep a large purse of foreign exchange reserve often discover that their purchasing power tend to diminish as the value of the local currency begins to increase. It also becomes harder to repatriate foreign earnings when the foreign currency weakens in relation to your home currency.

A sudden and unexpected downtrend in the value of a country’s currency can quickly translate into losses that wipes off the profit on your balance sheet. If you are exporting your products to foreign markets, a strengthening of your local currency might make your products more expensive to foreign buyers thereby leading to lost or reduced sales. Businesses that import raw materials or services can also see their cost of production or operating expenses climb rapidly when the value of their local currency drops.

Jeff Broth

James Broth is a business writer, mentor, and personal finance advisor. He has been consulting for SMB owners and entrepreneurs for the past seven years.