In a guest article, Graham Nicholson, Business Development Manager at Cornhill, explains how he can help businesses manage their foreign exchange risks.
On the 17th May, £/$ was around 1.21. By the beginning of September it was flirting with 1.35, and last week it was around 1.29. These wild swings present a threat to any business plan and profitability in these difficult times. Using an FX specialist offers great advantages to both companies and individuals.
FX hedging provides a great business tool to mitigate the risks of the increasingly volatile foreign exchange markets. Companies doing international trade begin their financial year with a business plan built around a certain FX rate that is used to set prices and cement profit margins to be competitive and profitable in their specialist sector. FX hedging allows companies to lock-in an FX rate for the future, thus acting as a safety net for the company finances and protecting their profits. Another huge benefit of FX hedging is that clients can lock any % of their risks, and agree parameters if the FX rate hits a certain level, to lock-in a further % of their risks/profits. This guarantees certainty; something businesses have craved the past four years, since the Brexit vote.
One of our clients who previously used their bank to handle their foreign invoices did not have the option to use FX hedging. As all of their invoices were agreed up to nine months in advance of currency payments and delivered goods, they were at the mercy of the foreign exchange markets for up to a year, and never in control of their balance sheets or profit margins. They are now very happy because we were able to help them control their FX risks. Another individual client sold a house in France but was not completing on the sale till some four months later. He liked the exchange rate at the time of exchanging contracts, and we locked the FX rate for him so he knew exactly how much sterling he would receive when the euros were paid to him. He understood the FX rate could have subsequently moved in his favour, but he was happy with the certainty of knowing he would receive a guaranteed amount through FX hedging. As it happened, he saved around £20,000 by locking in the FX rate at the time, but it was the certainty he was delighted with more than the saving.
We have seen a swing of up to 12% this year in some FX currency pairs. Companies do not wish to have to alter their prices to protect margins as this may make them uncompetitive against their rivals and lose them sales; by using FX hedging you can lock in your profits on every single deal to secure business.
An FX specialist is your eyes and ears in the currency markets and FX hedging presents a great tool to help any business take control of their balance sheets and the confidence to secure future business knowing their profit margins can be protected.
If you would like to know more about the services we offer I would be delighted to have a chat.
Graham Nicholson, Business Development Manager, North East, Cornhill International Payments Ltd, Direct Tel: +44 (0) 203 409 5366