Protecting Small Businesses from Currency Fluctuations

Most people only become aware of the currency fluctuations when they’re about to go on holiday and have to pay attention to the exchange rate. However, if you run a business that trades in an international market, you should be all too familiar with the rise and fall of currency.

How do currency fluctuations affect your business?

It can be very difficult for small businesses to stay abreast of currency fluctuations, as they are moving every couple of minutes, and most SME’s don’t have the expertise in house to deal with the financial management of this aspect.

If you are importing or exporting goods for your business then the strength of your home currency against foreign currency can make the difference between profit and loss.

Strong currency vs weak currency

A currency is classed as strong if it is worth more in relation to other currencies, so if one unit of the currency trades for more units of another currency this is a strong currency. This makes it cheaper to buy imports but renders exports to foreign countries more expensive.

A weak currency (sometimes referred to as a ‘soft currency’) is a currency that frequently fluctuates in value. Weak currencies are mostly found in developing countries or where economies are less stable.

Most currencies are now ‘floating’ and their values are based on market trends, and vary accordingly.

What do currency fluctuations mean for your business?

This all depends how strong your currency currently is and whether you are importing or exporting products.

If you’re in the UK and are importing products from China, it is likely that you will be getting more for your pound as the Chinese Renminbi is weak against the pound (and vice versa).

Running a business in an international market requires detailed knowledge of everyday exchange rates, past rates and common knowledge of how your home currency fairs within the market. With detailed knowledge of currency fluctuations you can time your import/export purchase to maximise profit and minimise spend.

The constant currency fluctuations can make it difficult to make market forecasts for the business. If a currency is weak it can eat in to profits and mean some of the costs may have to be passed on to customers, which isn’t ideal.

There are some precautionary measures which can help to combat currency fluctuations.

 

 

How to combat currency fluctuations:

  1. Know the market

If you want to make a profit in the international market it is key that you stay on top of the exchange rates. Know how strong local currency is and how it is affected by other currencies, along with the impact this will have on your imports/exports/supplies.

Research past market rates (6 months to a year should be plenty) for the currency you are trading with and make a chart, this way you can see clearly what you worse and best case scenarios may be. If the going is good you may be able to buy in bulk and save some money.

  1. Make a deal

If you can make a deal with your importer to pay in your own currency this will avoid taking a hit for any currency fluctuations. If this isn’t possible see if you can fix a rate on currency exchange, making it easier for forecasting and to avoid market fluctuations. This does however mean if your currency ‘gains’ you may be losing out, but if the opposite happens it can avoid you taking a hit.

  1. Use a specialist

You can use a regular bank to conduct your business via however they are renowned for having terrible exchange rates. It makes more sense to buy currency from specialist exchange brokers such as Axia FX, not only do these companies provide competitive exchange rates they often have perks such as; faster payments to suppliers, a personal account manager who specialises in foreign currency exchange, access to up-to-date market knowledge, and often an option to freeze exchange rates when they are good to protect against currency fluctuations.

8 Responses to “Protecting Small Businesses from Currency Fluctuations on “Protecting Small Businesses from Currency Fluctuations”

  • I earn Thai baht, and it is attaining purchasing energy. Just how can make use of this market fluctuation to my advantage when it comes to swapping currency for any profit? Interesting time!

  • . Worldwide

    a.Will the firm have significant foreign sales?

    b.Will the firm have significant foreign providers?

    c.Using what nations will the firm have significant business relations?

    d.May be the firm susceptible to currency fluctuations?

    Can you rate the corporation like a “BUY”, “SELL” or “HOLD”?

  • How can foreign exchange rates, unemployment amounts, and rates of interest modify the stock exchange?

    It appears they are frequently in news reports and just how prices move ahead the anticipation of these.

  • Why is the foreign exchange rate increase and lower and who sets them? Thanks.

  • Will the US Dollar generally rise against other currency’s once the stock exchange tanks? I observed the US Dollar rose from the Euro today simultaneously the stock exchange indexes dropped. Performs this imply that traders are keeping their cash in cash or purchasing USD when they’re tugging from stocks? I am quite a new comer to all of this and learning. It appears the USD may become more powerful once the Given boosts the rates of interest but what exactly are another factors that may make it fluctuate on the daily or weekly basis? Finally, what direction do you consider it is going within the next couple of days, several weeks, and years?

  • Residing in southern Mexico and traveling back and forth from the united states I visit the banks and foreign exchange houses however the rate they pay is for instance 11.80 pesos per us dollar yesterday as the rate around the internet is 12.78 pesos per dollar. I appear to become consistently losing roughly one peso per dollar. Does anybody know where I’m able to get compensated an interest rate nearer to the real exchange rate? Any suggestions or help could be greatly appreciated.

  • Do you know the key historic occasions and just how made it happen end up being the world’s most significant reserve currency?

  • its currency (e.g. Panama, Ecuador, etc)? My reasoning is the fact that I would not be exposed to currency fluctuations that may erode my profits. Also, are their rates of interest much better than what’s offered within the U.S.? Is that this money safe? I have come across safe, guaranteed bank rates of sevenPercent or even more in a few of these nations. What is your opinion?

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