Myth: Managing currency risks is not for small businesses
Fact: Businesses of ANY size that trade internationally may benefit from currency management and an increasing number of small businesses do so, especially in the UK! Currency management does not have to be complicated or expensive. If your business contracts with suppliers or buyers in foreign currencies, you can now turn your future currency cashflows in Pounds Sterling with a press of a button for as little as 0.35%.
Myth: Currency risk-management mainly used to protect foreign profits.
Fact: There are many reasons currency management can be useful but protecting one’s profits usually does not make the top of the list. Primary reason of currency management is to make one’s CASHFLOWS predictable. As currencies go up and down, leaving foreign currency cashflows unmanaged until a payment date leads to your cashflows being less predictable, which is a very dangerous thing for a small business.
Myth: Managing currency cash balances removes currency risks
Fact: One of the main sources of currency risks for businesses is invoices in foreign currencies that have not been paid yet. If foreign currency strengthens while you wait to pay, you will have to pay more, but how much? Some businesses buy currencies in advance and keep enough currency balances on their accounts to pay your suppliers. That is ok, but a very inefficient way to use your working capital. And if you receive foreign currencies from your buyers, keeping currency balances just ADDS to your risks! The better way to deal with unpaid invoices and receipts is to prebook Guaranteed exchange in advance without blocking much working capital and taking unnecessary risks.
Myth: Currency swings are a fact of life when you trade internationally
Fact: While currency swings are indeed regular occurrence in financial markets, it is very easy to remove their effect on more businesses. It is possible to manage your international trade while completely removing the currency effects and it costs as little as 0.35%
Myth: Dealing in foreign exchange forwards is gambling
Fact: Let’s get it straight, buying FX forwards because you think the currency is going up can indeed be gambling. However, this is not how most businesses use them. If you have committed foreign currency cashflows (such as a foreign currency invoice to pay) you don’t know your cashflows in your home currency. FX forwards are the most popular way to turn otherwise unpredictable value into a known amount in your home currency. In fact, not doing this when you have a foreign currency invoices or receipts is often gambling!