By Jeremy Cook, chief economist at World First
If you are importing or exporting goods from overseas it’s crucial that you plan ahead to protect your profits, writes Jeremy Cook.
Volatility has been the hallmark of the summer. These wild fluctuations in the worlds markets are not likely to become any more stable in the short term. Difficulties in the global economy have caused significant variations in the value of international currencies in recent times.
For example, the euro has moved by over 13% against the pound throughout the last 12 months, and when it comes to large sums of money that kind of change can make a significant impact on the amounts you end up dealing with.
For anyone involved in making regular international money transfers, staying up to date with the latest information about where the rates are going is very important. Getting access to market analysis and staying on top of the economic news is certainly good idea. However, looking up one of the few companies who are well positioned to help control your exposure is also very advisable.
Most people use their banks to try and secure a good spot rate (the rate to move money on the day). But by using an FSA authorised foreign exchange company you will usually be able to access better exchange rates.
When it comes to the general business markets, the banks have a limited range of services available and risk management strategies are usually reserved only for FTSE100 rated companies.
When looking to use a broker, it’s important you are careful who you choose. Some foreign exchange brokers offer forward contracts on currency, suggesting that they are providing protection, but often customers can find themselves locked into an exchange rate which does not allow them to benefit if that rate subsequently improves.
Employing a planned line of attack to international transaction can make a big difference to your budgets for the year. However, the main thing this offers to importers and exporters is the confidence to plan ahead without any uncertainties.
Nobody has a crystal ball, and it’s impossible to predict whether the values of these key currencies are going to shift one or the other in what has been an incredibly difficult period. That’s why it’s good to know that there are ways of controlling your exposure to these factors with the right tactics.
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