A strong end to a difficult year saw sterling hit €1.20 in December for the first time in 2011, an upturn which continued at the beginning of 2012, with sterling breaking €1.21 for the first time in 16 months on January 5th.
Although a 16–month high may seem like good news, it can bring difficulties for British companies who are exporting to the Eurozone. If a British company offered £10,000 of materials on October 30th, this would have cost a French company €11,337. Just ten weeks later, on January 9th, the same £10,000 invoice would’ve cost our French company €12,158. That’s a 7% increase in price, simply because of the fluctuations in the currency market.
Many companies initially took the sanguine view that “no one knows where the markets are going so there’s no point in worrying about it – we’ll just take whatever rate is offered at the time”.
There is an element of truth in this – predicting the movement in the market can be difficult, even for the experts – but there are also many ways that currency specialists can limit the effects of these changes.
One such example used at Smart Currency Exchange is a forward contract, where a company pays a small deposit (typically 10% or less) to guarantee an exchange rate in advance of needing the full amount. When the invoice needs to be settled, the company pays the rest of the money and gets the foreign currency at the agreed rate, regardless of what’s happened to the exchange rate in the meantime.
For more information on Smart Currency Business call: 0845 638 0571 (or +44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyBusiness.com
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