Managing Currency Fluctuations When Trading Overseas
At Fascia Graphics® we have been exporting bespoke membrane keyboards, graphic overlays and screen printed labels overseas for a number of years. And so have experienced first-hand the issues that a fluctuating exchange rate can cause.
A 10% fluctuation in the exchange rate can be enough to wipe out an entire profit of a sale, with an even larger fluctuation in the wrong direction possibly resulting in total financial ruin for a business, where they have no currency protection in place.
Exchange rate uncertainty shouldn’t deter you from exporting; the benefits of exporting include giving your business a more diverse customer base, resulting in it becoming less vulnerable to the economic fluctuations of a single market.
Recent government research has found, that businesses that export are 11% more likely to survive than those businesses that do not.
One step you can take to ensure your business is protected from fluctuating exchange rates is through using forward contracts for your large sales. These contracts basically allow you to in advance fix the exchange rate at which you buy or sell currency up to 12 months in advance on a particular date.
Forward contracts can provide you with the certainty and therefore peace of mind, enabling you to lock the profit your make on a sale. So if a sale is worth £20,000, then no matter what happens to the exchange rate in the meantime, you are guaranteed to be getting your £20,000.
There are other more complex ways of protecting your business from fluctuating exchange rates, such as setting a lower and upper limit at which your business buys currency over a certain time period. Make sure though, that before making a deal with an exchange-rate service provider, that you understand exactly how it works and what the advantages and disadvantages are.
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