Uncertainties around Brexit, the US-China trade war and other market fluctuations are making it difficult for manufacturers to set prices with overseas partners, but three key steps can aid planning.
According to a new report from currency specialists moneycorp, the manufacturing industry is heavily exposed to the current volatility of currency costs.
For exporters, the weakness of the pound since the EU Referendum has provided a welcome boost to the attractiveness of UK-manufactured products for overseas buyers. However, it also carries some risk and more fluctuations in currency values are expected as the UK’s future relationship with the EU continues to unfold.
For importers, higher currency costs combined with rising inflation at home are resulting in squeezed margins. The situation is also compounded by the US-China trade war and a general downturn in global trade, which has had repercussions around the world.
To help manage the cost of international transfers and the risk of currency exposure, the report recommends manufacturers follow three key steps:
Understand the nature of your currency exposure
Look at your balance sheet and consider what fraction of overall incoming and outgoing funds is held in currency. A company with higher currency exposure bears more risk from currency fluctuations. Consideration should be made to where markets may be growing or shrinking and where future opportunities lie.
Understand the choices available
A number of different currency tools are available to businesses. For example, a ‘forward contract’ allows you to lock in a prevailing rate of exchange for a set period of time. This can be the best approach if you have definite commitments and a clear order pipeline. In contrast, a ‘market order’ allows funds to be transferred only when a target exchange rate is reached, giving you the opportunity to take advantage of movements in the market. There are no guarantees with a market order, but it can be paired with a ‘stop-loss’ order which specifies the lowest limit you are willing to accept.
Speak to a specialist
Currency specialists can provide guidance and work closely with manufacturers to help shed light on the opportunities and risks of different approaches, as well as help to streamline international payments so that multi-currency revenue and costs are less of a pressure on resources.
To find out more contact Luke Walden, Corporate Partnerships at moneycorp via email or on 0203 823 0526.