SMEs should act now to better understand their exposure to FX risk

Performanceart Ltd

Last week I presented to the Department for International Trade's East Midlands team of International Trade Advisers in an attempt to de-mystify corporate Foreign Exchange risk management.

Subjects covered included the importance of access to high quality liquidity, alongside the avoidance of penal transactions costs and "spreads", the aims and benefits of a corporate hedging strategy, and an examination of some of the strategies companies might look to implement in order to mitigate FX risks and ensure optimal working capital management.

This last point is key, for SMEs FX hedging is not about "beating the markets", it is about effective working capital management, and protecting their profit margins, it is in fact about not letting the markets "beat" them.

The consensus appeared to be that many companies don't do as much as they should to manage and reduce this largely avoidable risk to their business, and that in the coming months, and the run up to whatever "Brexit" may bring in March 2019, now more than ever this is an area companies should seek advice over.

It is, however, clear that very often there is little or no advice or expertise offered to small and medium-sized companies via their traditional banking relationships.

This shouldn't really surprise, for the banks, uninformed clients trading on obscenely wide spreads is a quietly profitable business, with no risk posed to themselves, indeed all of the risk lies with those who transact without understanding the often simple ways they can transact more profitably, and also mitigate the risks presented by currency volatility more effectively.

If any GBCC member wishes to have an informal discussion to examine their company's exposure to currency volatility, please contact Ashley Tabony.

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