Carl Hasty, head of trading with Smart Currency Exchange, looks at whether now is a good time to forward buy euros with sterling closing on a three-year high against the euro.
The markets seem to be picking off the weaker Eurozone states one by one. First it was Greece and now they appear to have Spain in their sights as major structural deficiencies in the Spanish economy come to the fore.
“Spain is facing an economic situation of extreme difficulty...and anyone who doesn’t understand that is fooling themselves,” Prime Minister Mariano Rajoy recently told a meeting of his People’s Party in Malaga.
For a snapshot of Spain’s economic woes, consider the following: Santander, the Eurozone's largest bank, was recently selling off two-bedroom apartments around a communal swimming pool for 65,000 euros - that’s 50 per cent lower than they were selling at peak. The debt issues of the Eurozone’s weaker nations appear to be unravelling; clearly, the Eurozone crisis hasn’t gone away.
Take a look at sterling against the euro. At the time of writing it stands at £1/€1.21. Problems in the Eurozone member states, like those in Spain, have huge implications for the euro. At Smart, we take regular forecasts from the top analysts in the City to help us map out where the markets are expected to head. At present we’re seeing 3-month expectations against the Euro at 1.23, moving to 1.25 on a 12-month scale.
But these are only forecasts and, like any forecasts, they can change – particularly with exchange rates so volatile right now. Moreover, if you look at sterling versus the euro over the past few years, anything over 1.20 represents a very good rate – remember, the £/€ rate almost reached parity not that long ago.
Forward contracts
With this in mind, we think now could be a good time to ‘lock-in’ the current £/€ rate with a forward contract. A forward contract is a form of hedging which lets you reserve today’s exchange rate for a set period of time until it comes to settling your invoice.
Forward contracts are a very good way of helping a business to budget when importing or exporting. For instance, if your business knows now roughly how much currency it will need to purchase in the next twelve months or so, the current 1.21 exchange rate can be reserved today. Alternatively, you might wish to hedge – reserving, say, 50 per cent of the currency you need while purchasing the rest in, say, six months.
This probably represents a good hedge for three reasons. Firstly, you have locked-in at an attractive exchange rate. Secondly, our forecasts suggest the rate might get slightly better so you still get the chance to benefit from any upside to sterling by not purchasing all of your euros now. And finally, it would take a sizeable shift in market sentiment for the euro to start appreciating markedly against sterling – thus leaving yourself partially exposed in the short-term doesn’t represent a major risk.
To secure this rate a small deposit needs to be paid within two days of placing the order. The outstanding amount is paid just prior to the completion of the transaction.
To discuss your options give us a call on 020 7898 0500 or go to: www.SmartCurrencyBusiness.com
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
Wednesday, 18 April 2012
How Smart helped David from Enexos
Throughout history the sun has been used to give light and heat and its almost unlimited potential can provide more than enough energy for the whole planets growing energy demands. Many different methods have been used to capture its energy but by far the most simple method is the use of photovoltaic (PV) cells which trap the sun's energy and convert it into electricity.
London-based company Enexos were established in 2009. Their aim was to show that the use of solar power is sustainable and profitable for small and medium-sized businesses.
After the Labour Government introduced generous feed-in tariffs to encourage businesses to investigate renewable energy options, people were quick to invest and Enexos was bombarded with demand for their design and consultancy services to do with PV cells.
Shortly after the Coalition Government took the reigns from Labour in May 2010 a complete U-turn in policy was announced that detrimentally affected the availability of these feed-in tariffs. Understandably these changes enforced by the new Government meant that Enexos had to completely re-examine their business model and their financial dealings. This led them to Smart Currency Exchange....
David Finlay, Managing Director of Enexos told us what it was that made him choose Smart: “First and foremost, the rate we obtained was as good as we could ever realistically hope to get. Of almost equal importance was the fact that the transaction was both fast and completely hassle-free. When you throw in the added bonus that phoning Smart Currency means you can immediately talk to a person who is both knowledgeable and polite ... what's not to like?”
David continued: “For us it's a no-brainer, Smart Currency has a first option on all our future FX business. SME's like ourselves would do well to give them a call the next time they are considering buying or selling foreign exchange”
David expressed concern that not all businesses were aware of currency exchange experts and often use their bank to transfer money, a process which incurs high fees: “If our experience is any guide, SME’s in this country doing FX just can't afford to go through their banks. Banks negotiating FX for small corporates seem intent on only one thing … to maximise their own profits, even if this involves ripping off their customers in the process, and the sad thing is that most people don't even realise”
“The guys at Smart Currency Exchange are serving a very necessary economic function and I wish them well”
The message is clear. Managing your foreign currency exposure effectively is a vital requirement of any business that deals internationally. For more information, get in touch with the team at Smart Currency Exchange on 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
London-based company Enexos were established in 2009. Their aim was to show that the use of solar power is sustainable and profitable for small and medium-sized businesses.
After the Labour Government introduced generous feed-in tariffs to encourage businesses to investigate renewable energy options, people were quick to invest and Enexos was bombarded with demand for their design and consultancy services to do with PV cells.
Shortly after the Coalition Government took the reigns from Labour in May 2010 a complete U-turn in policy was announced that detrimentally affected the availability of these feed-in tariffs. Understandably these changes enforced by the new Government meant that Enexos had to completely re-examine their business model and their financial dealings. This led them to Smart Currency Exchange....
David Finlay, Managing Director of Enexos told us what it was that made him choose Smart: “First and foremost, the rate we obtained was as good as we could ever realistically hope to get. Of almost equal importance was the fact that the transaction was both fast and completely hassle-free. When you throw in the added bonus that phoning Smart Currency means you can immediately talk to a person who is both knowledgeable and polite ... what's not to like?”
David continued: “For us it's a no-brainer, Smart Currency has a first option on all our future FX business. SME's like ourselves would do well to give them a call the next time they are considering buying or selling foreign exchange”
David expressed concern that not all businesses were aware of currency exchange experts and often use their bank to transfer money, a process which incurs high fees: “If our experience is any guide, SME’s in this country doing FX just can't afford to go through their banks. Banks negotiating FX for small corporates seem intent on only one thing … to maximise their own profits, even if this involves ripping off their customers in the process, and the sad thing is that most people don't even realise”
“The guys at Smart Currency Exchange are serving a very necessary economic function and I wish them well”
The message is clear. Managing your foreign currency exposure effectively is a vital requirement of any business that deals internationally. For more information, get in touch with the team at Smart Currency Exchange on 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
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