For many years, doing business internationally was easy – exchange rates remained relatively stable and budgeting for contracts overseas was straightforward. However, with the advent of the credit crunch, exchange rate volatility has made international trade incredibly tough for many businesses.
Fortunately, one way to protect your business and profit margins in these uncertain times is to use an international payment specialist, as Denis McLeod of Capitol Industrial Batteries Systems, which manufactures and imports train batteries from the Far East, has found out. “We buy several hundred thousand US dollars per year, so even a 1 cent movement either way can equate to a significant loss if you don’t protect yourself effectively. I buy forward on orders. This enables me to secure a rate today and pay when the order becomes due a few months down the line. I preserve cash flow in the business, but lock in an exchange rate. This means I know the exact margin and that it will not be eradicated by adverse market movements”
With banks still reeling from the credit crunch, international payment specialists – independent companies that specialise purely in foreign exchange – are becoming increasingly valuable service providers to SMEs.
“We offer better than bank exchange rates and a level of proactivity and service that companies have never had from their bank,” explains Charles Purdy of international payment specialist Smart Currency Exchange. “On an average transaction, we save our clients between 1-2 per cent against their bank’s exchange rate, which equates to thousands over a year”
Denis McLeod agrees: “We bought $150,000 forward through Smart Currency Exchange and saved around £1,000 against what our bank was offering. In addition, Smart helped us to buy at the right time when the US dollar rate was much higher and compared to today’s exchange rates we avoided a £5,000 loss on the contract.”
The message is clear. Managing your foreign currency exposure effectively is a vital requirement of any business that deals internationally. As members of the Rail Alliance, the team at Smart Currency Exchange have a unique understanding of the rail industry and the challenges faced when doing business internationally. To find out more go to… or call 0207 898 0503.
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
Thursday, 22 March 2012
Currency markets – a long, bumpy ride ahead?
Carl Hasty, head of trading with Smart Currency Exchange offers five reasons why further exchange rate fluctuation is on the horizon.
1 Unrest in the Eurozone
As long as instability in the Eurozone continues to play out – and there is certainly no end in sight – the value of the euro will fluctuate. The Eurozone’s list of problems goes on and on – from huge debts in the likes of Greece, Spain and Italy to disagreements about how such debts should be tackled. Is greater fiscal integration the way forward? How long does the ECB keep on handing out bail-outs? There are more questions than answers – leading to euro instability. In theory, the issues outlined above would lead to further weakening of the euro in the coming months. However, other currency regions around the world are not without their own problems.
2 Inflationary threat
The phrase ‘quantitative easing’ has entered the mainstream as central banks in the UK, Europe and US have gone into overdrive to try and stave off recession. Around £275bn has been injected into banks in the UK. The European Central Bank recently pumped €529.5bn into Europe’s banks – on top of €489.2bn of similar loans injected in December. In the US the Fed put in $600bn in 2011. Monetary injections of such magnitude represent unchartered territory for Western financial systems. Nobody knows what affect they will have on inflation and the value of respective currencies in the UK, Europe, US and beyond.
3 The US trade deficit
Importers of Californian wine will have noted that the sterling/dollar exchange rate has been volatile of late. The US is a strange one. On the one hand, the dollar offers a safe haven for investors - especially given issues in the Eurozone. And yet, there is the US deficit. This is a country that had a trade deficit equivalent to $48.8bn in December of 2011. While the US may well have run deficits for the past three decades, the sheer size of its deficits in recent years is raising growing concerns. Before long, it will require growth to service this deficit or a weakening of the dollar may result.
4 Shifting global power
There are signs that China – possibly India also - are on a path to overtake the US and other Western countries in terms of economic might. Latin American countries such as Brazil are also a huge threat to Western economic power. The financial crisis of recent years has seen the rate of convergence between the developing world and the West increasing. While the Eurozone and the US have become locked in a cycle of slow or negative growth, the likes of India, China and Brazil have been relatively unscathed. This shift in economic might is a long-term trend – with huge implications for the purchasing power of hitherto ‘strong’ currencies, sterling included.
5 Threat of protectionism
According to a call to action published by the 11 leaders of international organisations which kicked off the debate at the recent Davos forum, protectionism is one of the top three worries at the start of 2012. The past twelve months have seen evidence of devaluation strategies by leading currencies. Last autumn, for instance, a bill was passed by the US Senate calling for retaliatory action against countries engaging in currency manipulation – a signal of sentiment in the US right now. Importing wine from Australia? The Reserve Bank of Australia stated recently it could move to weaken the Australian dollar if conditions required it. Actions to devalue currencies in wine exporting countries such as Argentina and Chile have also been noted in recent times.
Hedging as an option
Exchange rate fluctuation is a critical issue for UK wine importers. If your business imports or exports wine, a robust currency strategy is a sensible way forward at a time of global uncertainty. Hedging options such as forward contracts can negate the currency risk of doing business abroad. There is a range of options to suit all circumstances and varying levels of attitude to risk.
At Smart Currency, we update our views on the euro/sterling exchange rate on a daily basis. We also produce on a monthly basis our Outlook report which pulls together our thoughts and those of the mainstream banks on where to next for exchange rates. Download your copy now by clicking here http://www.smartcurrencybusiness.com/freeOutlook.aspx or call us on 0207 898 0503to discuss your situation.
1 Unrest in the Eurozone
As long as instability in the Eurozone continues to play out – and there is certainly no end in sight – the value of the euro will fluctuate. The Eurozone’s list of problems goes on and on – from huge debts in the likes of Greece, Spain and Italy to disagreements about how such debts should be tackled. Is greater fiscal integration the way forward? How long does the ECB keep on handing out bail-outs? There are more questions than answers – leading to euro instability. In theory, the issues outlined above would lead to further weakening of the euro in the coming months. However, other currency regions around the world are not without their own problems.
2 Inflationary threat
The phrase ‘quantitative easing’ has entered the mainstream as central banks in the UK, Europe and US have gone into overdrive to try and stave off recession. Around £275bn has been injected into banks in the UK. The European Central Bank recently pumped €529.5bn into Europe’s banks – on top of €489.2bn of similar loans injected in December. In the US the Fed put in $600bn in 2011. Monetary injections of such magnitude represent unchartered territory for Western financial systems. Nobody knows what affect they will have on inflation and the value of respective currencies in the UK, Europe, US and beyond.
3 The US trade deficit
Importers of Californian wine will have noted that the sterling/dollar exchange rate has been volatile of late. The US is a strange one. On the one hand, the dollar offers a safe haven for investors - especially given issues in the Eurozone. And yet, there is the US deficit. This is a country that had a trade deficit equivalent to $48.8bn in December of 2011. While the US may well have run deficits for the past three decades, the sheer size of its deficits in recent years is raising growing concerns. Before long, it will require growth to service this deficit or a weakening of the dollar may result.
4 Shifting global power
There are signs that China – possibly India also - are on a path to overtake the US and other Western countries in terms of economic might. Latin American countries such as Brazil are also a huge threat to Western economic power. The financial crisis of recent years has seen the rate of convergence between the developing world and the West increasing. While the Eurozone and the US have become locked in a cycle of slow or negative growth, the likes of India, China and Brazil have been relatively unscathed. This shift in economic might is a long-term trend – with huge implications for the purchasing power of hitherto ‘strong’ currencies, sterling included.
5 Threat of protectionism
According to a call to action published by the 11 leaders of international organisations which kicked off the debate at the recent Davos forum, protectionism is one of the top three worries at the start of 2012. The past twelve months have seen evidence of devaluation strategies by leading currencies. Last autumn, for instance, a bill was passed by the US Senate calling for retaliatory action against countries engaging in currency manipulation – a signal of sentiment in the US right now. Importing wine from Australia? The Reserve Bank of Australia stated recently it could move to weaken the Australian dollar if conditions required it. Actions to devalue currencies in wine exporting countries such as Argentina and Chile have also been noted in recent times.
Hedging as an option
Exchange rate fluctuation is a critical issue for UK wine importers. If your business imports or exports wine, a robust currency strategy is a sensible way forward at a time of global uncertainty. Hedging options such as forward contracts can negate the currency risk of doing business abroad. There is a range of options to suit all circumstances and varying levels of attitude to risk.
At Smart Currency, we update our views on the euro/sterling exchange rate on a daily basis. We also produce on a monthly basis our Outlook report which pulls together our thoughts and those of the mainstream banks on where to next for exchange rates. Download your copy now by clicking here http://www.smartcurrencybusiness.com/freeOutlook.aspx or call us on 0207 898 0503to discuss your situation.
Wednesday, 21 March 2012
Budget Comment from Charles Purdy
In response to The Chancellor, Charles Purdy, MD of Smart Currency Exchange said:
The Government is very clear on the way forward with UK businesses being the key driver of UK economic growth. The focus of the Chancellor in today’s budget was to help businesses double exports to £1 trillion, help business to invest for the future by reducing corporation tax and also make available additional incentives for businesses to invest in technology and in deprived areas.
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
The Government is very clear on the way forward with UK businesses being the key driver of UK economic growth. The focus of the Chancellor in today’s budget was to help businesses double exports to £1 trillion, help business to invest for the future by reducing corporation tax and also make available additional incentives for businesses to invest in technology and in deprived areas.
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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