High change rate

Wednesday, 19 November 2008

With many countries feeling intense pressure on their economies and currencies – Hungary, Ukraine, Belarus, Russia and Pakistan are obvious examples – predicting the returns and costs related to overseas suppliers and customers is becoming increasingly difficult to achieve. With the typical importer operating on margins of around five per cent, violent currency swings can have a dramatic effect on profits. Sterling has been one of the most high profile movers with its position against the USD moving 28 per cent and against the yen a margin-crushing 44 per cent over the past 12 months. Following the Icelandic government’s move to nationalise the banks the currency lost 73 per cent of its value against the USD in one day. 

David Reith, Director of Moneycorp, says: ‘From a behavioural aspect there has definitely been a change in attitude in recent months due to the increased volatility. International companies traditionally analysed their foreign exchange policies every six months, but this is increasingly being looked at more frequently.’ 

Moneycorp has seen an increase of 70 per cent in the numbers of companies looking to open an account to protect themselves from this risk, but sees international expansion as part of the answer rather than the problem, as negative exchange rate movements in one market can be offset against positive movements in another. Lesley Batchelor of the UK-based Institute of Export agrees:‘Being dependent on one market makes your business more at risk to exchange rates, but being involved in more than one market – either through import or export – means that you have a more secure base during these turbulent times.’