In fact, irrespective of whether a UK-based company is involved in more than one geographic market or not, the chances are that they will feel the impact of macro-economic events on the other side of the world in 2016. The big two questions are why, and what can they do about it?Firms of all sizes are significantly exposed to currency fluctuations due to the fact that many companies are reliant on cross-border business – such as sourcing from abroad and exports – and therefore swings in currency values can affect the bottom line. However, despite many businesses preparing for risks such as energy cost fluctuations or headline inflation, far fewer SMEs prepare for foreign exchange-based risks. In making the case for risk management, it is first important to look at how the domino effect of economic data can affect matters closer to home. Recent weeks have witnessed matters 4,800 miles away in Beijing, and indeed closer to home at the Bank of England, significantly affect the currency markets. Recently, China woes and crude oil prices falling to 13-year lows saw global risk sentiment plunge lower, which actually became the main reason for sharp declines in the value of the pound. The current market swings that have seen the value of sterling slump against the euro and the dollar is due to a cauldron of different issues, most of which relate to the volatility of the market and the fact that London’s blue-chip index has declined by about 17 per cent. This has caused concern for investors who fear additional pressures such as lower oil prices and China’s economic slow-down could intensify pressure on FTSE companies. Those investors are likely to remain cautious with key market commentators like governor Mark Carney continuing to fret about global threats and recent gloomy ONS data showing manufacturing has slowed down in the UK. For British SMEs, these may seem like distant influencers. However, a serious global slowdown could foreshadow some more wild days for share prices and currency values in the months ahead. The main issues will be for importers and exporters dealing with these fluctuations, and in particular when it comes to trading with our main partner, Europe.
Read more on foreign currencies:
- The bull in the China shop: Money managers short on history and long on panic
- Don’t hoard, hedge: Why holding on to your Euros is risky
- Currency concerns top list of exporting hurdles
With the forex sector so hot at the moment, one British business introduced a money conversion service that secured the recognition of Richard Branson, TfL and Westfield London with the term “currency exchange on steroids”.Richard de Meo is MD and founder of Foenix Partners, an award-winning corporate forex company Image: Shutterstock
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