Foreign Exchange requirements for your business – is now the time to assess?

Luke Walden from one of the largest non-bank FX providers globally, Moneycorp, has produced some guidance below on what you need to consider if your business is continuing to make and receive international payments during this time or might start re-entering contracts in foreign currency in the near future.

As the world continues to comprehend, familiarise and manage the Coronavirus pandemic, businesses are understandably struggling to come to terms with the drastic implications. From ensuring employee job security through to governmental loans and assistance, these are certainly tricky waters for UK companies to sail in.

It is agreed the longer the lockdown in the UK continues, the harder it will be for many businesses to remain in operation. It would be interesting to see how many kitchen sinks the government have to throw at this problem if the UK was still unable to completely relax restrictions after the summer, and potentially beyond.

Supply chains have been hugely disrupted – the NHS’s requirement of PPE products at the start of the pandemic being classic example of that. The UK imported over USD 650bln worth of goods in 2019 but that number has taken a massive hit in recent weeks and months*. Until these channels are fully re-opened and UK businesses are able to source products and access global markets as they did previously, it’s hard to see much light at the end of the diminishing tunnel.

There are, of course, Brexit negotiations reemerging which will only worry UK businesses further as certainty of that outcome is far from finalized.

With all that in mind, should businesses who buy and sell physical goods and services internationally really be allocating time and effort assessing their cross-currency international payments during such a tumultuous period? The short answer is ‘Yes’.

If a business is continuing to make and receive international payments during this time – and there are many businesses which are, or any businesses which believe that they might start re-entering contracts in foreign currency in the near future, there are two key areas to consider:

Market volatility

Unpredictability and uncertainty can cause major fluctuations in currency volatility and the Coronavirus situation is no different. Sterling depreciated c.13.5% versus the US Dollar during the first two weeks of March. It has subsequently strengthened against the Greenback by 11.5%. Volatility on this magnitude, and over such a short timeframe, makes it very difficult for business to budget accordingly when pricing their FX costs against other parts of the business. Simple hedging products may allow companies to reduce their exposure and risk to such currency movements.

Costs associated with cross-currency transactions

It’s been well-documented that traditional banks, in general, do not pass on the best rates of exchange to corporate clients. By merely checking and comparing historical exchange rates, it’s very easy to uncover potential savings for a company and allow them to re-invest those savings back in to the business.