Mitigating Foreign Exchange Risk

Many companies source and sell products globally, resulting in customers and suppliers being located in different countries and payments being taken and made in different currencies. Businesses who frequently conduct international transactions will know that there is always an element of risk when it comes to foreign exchange

Whilst fluctuating currencies have the potential to heavily impact profits, it can also be used to your advantage when the right strategy is put in place.

With over 14 years’ experience working with both small and large businesses across the globe, Halo Financial understands the importance of a comprehensive risk management strategy.

Currency is an integral part of managing foreign exchange risk effectively, so it’s crucial that businesses implement the right foreign exchange solution tailored to their individual needs.

What is foreign exchange risk?

Market volatility means that currencies fluctuate on a regular basis, especially in times of uncertainty such as Brexit and the coronavirus pandemic, which can significantly impact exchange rates.

The unpredictability of the market means that profits and losses can occur at any given time, so it’s important to implement the right solution to ensure that you use currency volatility to your advantage.

As a foreign exchange specialist, Halo Financial can help your business navigate through currency exchange risk to ensure you get the best rate possible.

What are the different types of foreign exchange risk?

The term ‘foreign exchange risk’ could refer to a number of different risk categories, all of which can heavily impact businesses profitability:

Transaction risk

When businesses buy products from a company abroad, the product price will be calculated in the selling company’s currency. Should the currency of the selling company increase in value against the buying company’s currency, the purchasing company would be required to make a larger payment to meet the stated selling price.

Translation risk

Businesses with child companies in other countries could be faced with substantial losses when their profits are converted back into the parent company’s currency.

Economic risk

When the market value of a business remains vulnerable as a result of currency fluctuations.

Solutions to mitigate foreign exchange risk

At Halo Financial we offer a variety of smart foreign exchange solutions, helping small to large businesses get the best possible exchange rate when making international payments.

Automated orders

Allow your business to save hours of valuable time and protect profits by using automated orders. With this option, businesses can select their ideal exchange rate in advance, and trades will only be processed once the exchange rate hits your specified level. This option is ideal for using volatile currencies to your advantage whilst avoiding the need to constantly monitor exchange rates.

Forward trades

Forward currency trades is an option which allows businesses to buy now and pay later. Your dedicated Currency Consultant will work with you to establish an ideal exchange rate, and payment can then be deferred for up to 12 months in the future. This option is a cost-effective way to help manage exchange rate fluctuations, allowing you to plan for the future, helping businesses to easily budget their overseas payments.

Spot rates

Spot rates are an ideal option for businesses who are required to make urgent overseas payment. Companies can immediately agree on an exchange rate and then make payment within two business days. One of our expert Currency Consultants will help you identify the best time to place a trade to ensure that you get the best deal within your limited time frame.