What if your costs increased by over 10%?
Managing foreign exchange exposure More than a year after being declared a pandemic
by The World Health Organisation, the full and lasting
impact of COVID-19 on global trade remains to be fully
@WorldFirstLtd
Simon Smallwood, Head of Partnerships, WorldFirst UK Before joining WorldFirst Simon worked for a number of years with an SME and Accountancy focused Fintech business, having previously spent 8 years working for an Internationally focused UK based SME that he co-founded and is still running today. This provides Simon with a great insight into the benefits technology can bring to SMEs in managing their finances and the opportunities for Accountants, Bookkeepers and business owners alike.
understood. Casting a fresh spotlight on supply chain
vulnerabilities, the pandemic magnified problems that had been previously overlooked. The impact Covid-19 had on
supply and demand across the world economy triggered unprecedented levels of volatility and highlighted the importance of risk management for businesses.
I
n the years preceding the pandemic, the markets had remained relatively calm, and in spite of a few spikes in volatility in 2016 following the Brexit vote, 2018 and 2019 were somewhat stable. This meant many small businesses did not consider developing a company-wide foreign exchange policy. So, on March 20, 2020 when sterling fell to its lowest level against the US dollar for 35 years, with the GBP/USD exchange rate moving from 1.3157 to 1.1494 in the space of a few days (a shift of around 12.6%), companies that were making US-dollar payments from sterling during that period, without any forward contracts in place, would have witnessed a dramatic difference in the amounts received from the same payment had it been settled on March 10, compared to March 20. The trifecta of volatility, debt expansion and low interest rates
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therefore made businesses reexamine their risk management strategy in a way that hadn’t been done since the 2008 global financial crisis. Adopting a strategy to protect against foreign exchange risk and exchange rate volatility affecting import and export prices is subsequently more important than ever, but what can finance directors and business owners do to reduce risks from future fluctuations? Should you have a FX risk management strategy? If you or your clients raises a proportion of revenues or pays a proportion of costs in a foreign currency that is significant to your business, we think YES, it’s a
good idea to find out how a solid risk management strategy could benefit you. Strategies will vary in size and complexity according to business needs, but products are available that could help you approach potential exposure in a sensible and measured manner. Hedge against uncertainty Hedging can introduce predictability to your future FX rates, increase visibility of your cashflow, and protect your internal budgets and profit margins from foreign currency fluctuations. A forward exchange contract with WorldFirst can be entered to facilitate payments for identifiable
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