The recent period of disruption, as a result of Brexit and Covid-19, has meant many business owners have used the time to take a fresh look at their business; to assess opportunities as well as try to identify potential threats. But have you considered the impact of Foreign Exchange (FX) on your business? It’s arguable there’s a need now more than ever for businesses to be nimble in their FX approach, because of the mix of uncertainties: business, economic and currency.
Infinity International Foreign Exchange, an FX provider, advocate taking a step back and spending time to identify where FX exposure and risk could arise across your entire business, considering various scenarios. The aim, they say, is to create a currency planning approach with currency conversion and hedging solutions that are aligned to your business objectives with the right level of flexibility to incorporate the business needs.
As part of this exercise, Infinity suggests you could consider:
The extent of your FX requirements
Businesses have been operating through a period of high flux and uncertainty, any currency risk may have changed as a result. It may now have a different – larger or smaller – impact on your business. It’s prudent to ensure any currency planning approach is still relevant to the current situation in your business and is producing the results you had originally aimed for.
The impact of futures moves on your business
It might be prudent to ask yourself what a move in the FX rate could mean for your business. Take the extent of the movement in the FX market in 2020 for example: there was a c.13% difference between the high and low GBP/EUR interbank rate and a c.17% difference between the high and low in GBP/USD interbank rate over the course of the year – that level of movement is likely to have an impact on businesses.
How you could manage this change, bearing in mind the need to be flexible in the current environment.
Absorbing this magnitude of change in FX rates, has the potential to create negative or positive outcomes for your business. Infinity suggest that currency planning is one way to help achieve a degree of certainty on the related costs or revenue.
Here are Infinity’s list of recommended questions you might ask yourself as part of planning your currency approach:
- Have your currency requirements changed in the last 6-12 months? Are they likely to?
- Consider whether your existing FX strategy has proved an effective strategy to date. Is now a sensible time to try and mitigate FX risks by looking into forward hedging, or can you pass FX risk effectively to your customers?
- You might have an FX budget rate that you use for planning or contract purposes – is this achievable? What is the impact if you cannot achieve it?
- Would you like to try and achieve some certainty over future requirements by locking in the FX rate using a forward contract? Identify how can you align the FX hedge to the timing and the dynamic of the underlying business activity which generates the currency requirement
- Thinking about how confident you are in your cash flow forecasting, will drive how you hedge, how much you should hedge and for what period.
- You would also need to consider the forward facility that you are offered by your FX provider, and what are the terms of that.
Infinity propose that by taking the time to re-assess your currency planning strategy, both in terms of the currency requirements of the business as well as how future FX moves might impact the business, you are able to try and take control of some of the uncertainty you may be faced with. You then have the relevant information to think through a framework for how you might manage those various outcomes and what the related activities should be. There is comfort in having a plan even if within that there are still several variables.
Prompted by considerable currency volatility during 2020, FOLK2FOLK has teamed up with Infinity International Foreign Exchange to introduce customers with currency exposure and international payment requirements who wish to access the specialist support they offer. Contact us for more information.
About Infinity International Foreign Exchange
As an FX provider, Infinity provides support with currency risk management and international payment requirements. But going beyond that they help their clients understand their currency risks, support them in identifying risk, understanding the impact on their business and then working with clients to develop a risk management strategy so they have a clear view on the currency impact to profitability going forward. They are now partnering with FOLK2FOLK to offer their FX expertise to FOLK2FOLK customers who wish to access it.
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