Managing overseas currency rates during market fluctuation

27th February 2018

With over a quarter of a million UK businesses importing goods internationally and emerging markets continually surfacing, sending and receiving money has become a necessity.

If you think currency should be left to traders and bankers, then you'd be wrong. Consider the Brexit announcement in June 2016 and the impact currency fluctuations had on a UK business's profits and savings. GBP/EUR rate fell significantly overnight resulting in many business having to rethink their immediate currency strategy as the pound weakened against the euro.

Example scenario - identifying risk

23rd June€35,0001.3099£26,720£3,313
24th June1.1654£30,033

Please note the above excludes any additional margin and/or fees and is intended as an example only.

The above example highlights the movement of the mid-market rate between GBP/EUR and the financial costs you'd endure settling an invoice with an overseas supplier. By simply booking the trade on 23rd June would have resulted in £3,305 better off than had the trade been booked 24 hours later. This particular movement was triggered by an unexpected political announcement and confidence was subsequently lost in the pound, so understanding the impact of fluctuations no matter how big or small is vital to your company's bottom-line.

In addition to politics, economic news such as interest rates and unemployment announcements can alter exchange rates. Whilst it's impossible to predict how the markets will react to both expected and unexpected events, you can take actions to managing the risk and it doesn't need to be complicated.

WhitesPay has developed a guide to help you manage currency payments, not least during times of volatility.

2-step approach

Step 1 - understanding your currency exposure

  • How many transactions a year are related to imports or exports?
  • What currencies do you transact in?
  • How often do you make foreign payments?
  • What exchange rate do you price your overseas goods at?
  • Would a large rate movement damage profitability?
  • Are the timing of your payments within your control?

Step 2 - use WhitesPay

WhitesPay have a number of services available to manage foreign exchange exposure. The key here is to utilise the knowledge and experience within WhitesPay

Spot trade: You simply buy or sell a foreign currency on the day. Whether you are booking over the phone or online, we will quote you an exchange rate and cost of settlement. This is our most-straightforward and efficient product - you know exactly how much sterling is required to settle and the amount of currency you'll receive. Whilst this service does not mitigate fluctuations day-to-day or even during the day itself, our experienced and knowledgeable traders are here to guide you to reduce this risk.

Forwards: A forward is a contract to purchase an amount of foreign currency at an agreed rate, either in parts throughout or in full at the end of the lifetime of the agreement. As there are no guarantees in how the market will move, forward planning allows you to reduce the risk and lock-in an agreed rate. The downside to this approach is that the exchange rate moves to a better rate than the fixed exchange rate you've already agreed.

Fluctuations in the market can profoundly affect any business and WhitesPay understands the need to manage these. By simply following the above approach or by contacting us direct to discuss your currency exposure as outlined in Step 1 we hope to develop a currency strategy that works for your business.

Written by: Thomas Huskinson
Thomas is WhitesPay’s Lead FX Trader and joined the business in 2015. In addition to his trading desk skill-set, Thomas is our chief economic content creator and responsible for our market updates.
Thomas Huskinson

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