How to mitigate and handle your currency risk

30th May 2019 Off By binary

We understand the importance for businesses to protect their bottom line, which can be threatened by the volatile foreign exchange markets. During high volatility periods, there can be undesirable effects on profit margins, especially if suitable and effective strategies are not put in place. However, Currency UK has a range of business services that can help you stimulate more profitability and reduce risks significantly when dealing with trades internationally.

Some of the services we can offer your business are:

Forward and Spot Contracts

These type of contracts are well-known risk management tools in foreign exchange.

A spot contract is the contracted exchange rate of a foreign exchange contract for immediate delivery, which requires payment on the same day. The immediately delivery period tends to be two business days after the trade date. These contracts are usually used for transactions that are required immediately, for example, a house purchase, or immediate delivery of goods that may be required in 2 days.

A forward contract or flexible forward contract is a general type of agreement wishing to take advantage of a favourable rate for a trade for a future date. This tool locks in the exchange rate and allows clients to decide upon a specific amount and delivery period, without worrying about upfront payments. This hedging tool can effectively formulate programmes that ensure you price competitively as well as mitigate and handle your currency risk.

Market Orders

Other products we offer that can minimise your businesses currency volatility are market orders. These products are particularly useful if you do not have immediate currency requirements, but may in the foreseeable future. There are two types of market orders:  

  1. A limit order allows you to place an order on your desired rate of exchange that is above current market levels. The target rate is live in the markets and once your target is reached, it will automatically purchase your currency for you.

  2. A stop-loss order is similar to a limit order, however, instead, you would set a target of the minimum exchange rate you would be willing to trade.

Businesses are affected by overseas markets in many ways, whether it is for exporting or importing, this can involve foreign exchange exposure which can be both favourable or unfavourable. However, with these tools that we offer, you can feel more confident each time you make a trade. So while your mission is to protect your bottom line, ours is to help you overcome and outperform all your currency risks, to help you be profitable. Please note when making a foreign exchange contract is vital that both parties will agree upon the currency pairs involved, the rate at the time of the transaction, when the contract will end and the stipulated amount.

If you would like to find out more about this, get in touch with one of our currency specialists today on +44(0)20 7738 0777.

 

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