Can you afford to ignore Foreign Exchange?

March 29, 2015 by Andy Crow @ Chorus Business Advisers

Can you afford to ignore Foreign Exchange?

The Euro is currently under extreme pressure against many currencies, with the ongoing “Greek Problem” putting a great deal of pressure on the single currency. In the past year, the Euro’s weakness and the strong performance of the UK economy has been reflected in the Sterling/Euro rate. Not so long ago it was almost parity i.e. for every one pound you got one miserly Euro. Recently the exchange rate has recently touched 1.40 Euros to the pound; a remarkable 40% appreciation. Conversely a strong US Dollar has seen Sterling’s value fall from around $1.85 per pound to the current level of around $1.50.

These fluctuating exchange rates not only open up opportunities but can also present challenges. Apart from European holidays and property in the Algarve getting cheaper what does all this mean for your business and how can you take advantage of the current movements?

Whatever your view of the market and whether you are an importer or exporter it is important to remember that there are mechanisms available in the market for you to lock in a rate. One such method is a Forward contract. For example, if you are looking to import raw materials or manufactured goods for resale here in the UK in 6 months time and your view is that the current rate is very favourable, you can hedge your exposure and buy your Euros for a future date and lock in your exposure. You don’t have to wait for the actual date of your purchase to buy your Euros and potentially see your profits disappear as the exchange rate collapses.

The same principles can be applied to any currency that you may wish to hedge although the differential will vary depending on the currency (and of course taking into account any foreign exchange controls that may exist in the country you are doing business in). Depending on your view and irrespective of whether you import or export there are a number of hedging strategies that can be applied.

We have mentioned previously that there are a growing number of companies that offer far better rates than the High Street banks, and Chorus have unique relationships that can assist you with any questions. For more information please call Chorus Business Advisers on 0845 8671263 or email info@chorusadvisers.co.uk.

We can help you make the right choice for your business.