How can your business protect itself from Brexit?
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In the two years since the UK voted to leave the EU, Brexit uncertainty has rippled through currency markets, rocking confidence in the Pound and causing major headaches for businesses.
As 2018 draws to a close we’ve seen even more exchange rate upheaval thanks to PM Theresa May’s Brexit agreement, and further volatility is all but guaranteed.
Such large swings in the currency market can be really concerning for businesses who have to manage international payments, with profit margins exposed to the impact of currency fluctuations.
But what can be done to help protect international business transfers from the impact of Brexit?
Explore your currency options
Businesses who want to protect themselves from adverse shifts in the currency market should start by weighing up the various transfer options available and reviewing how they can be employed to minimise their exposure to Brexit-related currency fluctuations.
If your company is currently using a bank to manage its transfer requirements you’ve probably found that they only offer sport transfers at the current market rate, making it impossible to hedge against swings in exchange rates.
Specialist currency providers, on the other hand, offer a range of different services which businesses can take advantage of to both streamline and protect their currency transfers, some of which are outlined below…
A forward contract is one of the most popular services for businesses seeking to hedge against the possibility of an unfavourable shift in exchange rates due to Brexit.
With a forward contract businesses are able to fix an exchange rate for up to two years, ensuring a future transfer will not be subject to the whims of the currency market.
If a forward contract was taken out when a business placed an order with an overseas supplier, for instance, the amount to pay the supplier when the invoice is due would not change, no matter how much the exchange rate moved in the meantime.
While fixing a rate in this way means you wouldn’t benefit if the exchange rate strengthened, you wouldn’t end up paying over the odds if it weakened dramatically.
Knowing how much your costs will be in advance can make it easier to budget effectively and keep control over your cash flow.
If a business wants to target a specific exchange rate then there are also Limit and Stop Loss Orders to consider.
If a business is optimistic on the chances of the Pound strengthening then they may consider using a limit order. With a limit order the business picks the exchange rate they’d like to achieve (a rate higher than the current market level) and the transfer is processed automatically if the exchange rate hits that level.
In contrast, a stop loss order allows businesses to hold out for a better rate, but control the risk of an exchange rate suddenly falling and leaving them out of pocket. With a stop loss order you set a worst-case rate, with your transfer being conducted automatically if the exchange rate falls to that level.
Stop loss and limit orders can also be used together to keep transfers within a set range.
Stay-up-to-date with the latest currency news
Outside of working with a dedicated currency broker and taking advantage of specialist transfer services, there are other precautions businesses can take to help minimise their exposure to future currency movements – the most simple and (often most effective) of which is to stay abreast of the latest currency news.
This information is never more than a couple of clicks away and there are a range of reputable news sources that can provide businesses with market insights, forecasts and currency analysis.
Armed with the knowledge of what exchange rates are up to and where they’re likely to head in the future, businesses will be able to time their transfers more effectively and maximise profits.
While it’s impossible for businesses to completely eliminate the risks posed by Brexit, by being aware of the latest currency movements and their transfer options, firms can take a proactive approach that protects their international payments and cash flow.
This article was provided by TorFX – the UK’s international transfer provider of the year in 2016, 2017 and 2018. Find out more.
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