Stagger your transfers to protect against currency volatilityNot sure if the current market rate might improve in the near future and not willing to trade your lot now? Try staggering your trades. If your business needs to make a significant one-off transaction, break down that trade into two, or even three, individual transfers over a period of time. By doing this, should the rates improve, you’re able to lift the average rate at which your lump sum was traded. And, if rates deteriorate, you’ve already covered a large portion of the trade at a better rate, allowing you to avoid exposing your entire transfer to the worst market rate.
Consider using forward contractsA forward contract allows you to buy or sell an amount of currency at or before a set time in the future. It enables you to effectively pre-purchase your currency by paying a deposit ahead of time and knowing in advance what rate you’re able to access for transfers down the line. The rate for a forward contract may differ from the spot rate as the market calculates a forward rate depending on the difference between the interest rates between the two currencies.
Firm ordersA firm order allows your company to target a specific exchange rate for the future. If or when the market hits your target rate, your broker will automatically trigger the transaction. Your targeted rate may be better than where the market is currently trading, to try and catch the rate when it moves in your favour, or worse, to ensure you have a worst case rate. This way you can focus on running your business and leave market monitoring to your broker.
Adopt a hedging strategyIf your business raises a proportion of your revenues or pays a proportion of your costs in a foreign currency that is significant to your company, in our opinion, you should have a clear risk management strategy in place. Strategies will vary in scope and complexity according to the size and complexity of your business. The strategy should allow you trade both proactively and reactively with a pre-approved set of tools that have already been approved by your board.
Contemplate currency optionsMany businesses use spot contracts, where you accept a given exchange rate ‘on the spot’, and forward contracts, which allow you to fix a rate for up to three years in combination. However an alternative option could lie in a made-to-measure currency option. You can discuss your hedging goals with your broker who will be able to talk you through suitable products that could help you achieve those objectives. There are positives and negatives whichever approach you decide on and a good broker will explain everything clearly before you decide. Using monitoring tools like XE.Com that displays currencies from around the world in real time. At World First, we believe that any business exposed to currency markets should actively manage its risk – market movements can hit your margins or increase costs without warning. Do you have a set of currency requirements that aren’t covered by spot and forward transactions? Speak to a World First FX specialist about creating a bespoke suite of hedging products to manage your risk.
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