Managing currency Exposure and maintaining risk management.

If you think currency and exchange rates are something only bankers must be concerned with, it’s time to reassess. Millions of businesses are exposed to currency risk and fluctuations, whether they realize it or not. FX has been incredibly volatile over the past few months, with the FED and central banks raising its rates having a huge impact on global currencies, the exchange-rate risk is now back on the agenda heading into 2023 for companies with customers, suppliers, or production in other countries dealing in multiple currencies.

Managing your currency risks can bring your business benefits such as protection for your cash flow and profit margins, improved financial forecasting & budgeting, a better understanding of how fluctuations in currencies affect your balance sheet & Increased borrowing capacity concluding that low FX Margins are critical right now with uncertainty about the length of recessions and global economic volatility.  

Managing your currency risk

Exchange rate volatility increases when central banks are facing strikingly different economic challenges, data is now showing that in fact 70% of small business owners now say they’re concerned about the impact of rising interest rates on their cash flow but with central banks from the major currencies facing different economic challenges, it is no wonder that policy responses have diverged which can make for considerable exchange rate volatility.

The G5 FX CVOL Index, which tracks volatility in the major currency pairs against the U.S. dollar, recently rose to the highest level since March 2020. Right now, managers should be focusing on what currencies to mitigate structural risks with depending on operations. With the risk that fundamental data can potentially see a profitable deal suddenly lose its value, it is becoming more and more crucial to make a more calculated decision for sustainability and for growth.

A simple and effective strategy is to first review your business operating cycle, this allows you to learn where your FX risk exists if any. The second step would be to create an FX policy once you have gained a perspective of your financial objectives and the potential effects that fluctuations in your currencies may have on your bottom line.

One of the most hedged ways to mitigate risk is to use a forward contracts approach, forward contracts can be used to lock in a specific price to avoid volatility in pricing.
Using these services from FX providers allows companies to systematically stay one step ahead of the markets when such economic events are forecasted while other FX services like Spot Trading & Options may also help mitigate risk with pricing volatility.

To save time and create more work flow, businesses can lower their exposure to fluctuating currencies and create stability through a dedicated FX transfer platform that works with over 40 different currencies in more than 130 countries. Foreign exchange specialists can help you with managing your international payments securely and much more efficiently allowing you to streamline your business by minimising the risk and cost of cross-border payments to any business exposed to currency exchange. Utilising a free-of-cost platform with reduced fixed margins will only add to your bottomline. Nothing to lose by trying and everything to gain!