The Financial Times recently reported on how swings in currency exchange rates have affected the earnings of multinational companies. Sterling and euro strength over the past year has exposed companies – particularly European ones – to swings of up to 20% against some of the currencies most affected by currency exchange rate fluctuations over the last year, and companies have literally paid the price.
Carl Hasty, Director of international money transfer specialist Smart Currency Business, has been warning companies of the danger of currency market fluctuations over the past ten years, and agrees with this assessment. “This is a very real issue, and the problem is particularly prevalent for companies dealing with emerging market currencies,” says Hasty. “As the Financial Times has pointed out, businesses are finding it ‘too expensive and impractical to protect against fluctuations’ in these volatile markets.
“I’ve found that the root of the problem is often a lack of awareness. Many companies either aren’t aware of the hedging strategies that can help them to minimise the risk inherent in currency markets, or think that these strategies are too complicated or expensive to implement.
“One example is a forward contract, which lets a company lock in an exchange rate now for a future purchase. This helps the business to save money and minimise risk on their currency purchases, and allows them to set a budget rate, so that they have a better idea of how much they will expect to spend.
“There needs to be greater awareness of the range of hedging strategies that can help businesses on the currency front. These are never one-size-fits all. Businesses require education and support in order to determine the best strategies for their currency transactions.
“This applies to both SMEs and multinationals, and extends beyond emerging market currencies. There are still many businesses that are not aware of how much they can save on currency exchanges when hedging on popular currencies like the euro and US dollar – or indeed the difference any losses will make to their business if they are unable to address the risk.”