Foreign exchange risk assessment

More businesses today are going global, with employees, customers, and suppliers located across multiple countries. The changing business landscape now means that more companies are required to transfer payments in a range of currencies. As a result, there is a natural Foreign Exchange risk, and managing your risk has now become more crucial than ever. 

Businesses who frequently conduct international transactions will know that there is always an element of risk when it comes to foreign exchange and making payments internationally. However, many are unaware of the strategies that can be implemented to mitigate Foreign Exchange risk and help protect company profits.

Whilst fluctuating exchange rates have the potential to heavily impact your bottom line; they can also be used to your advantage if trades are placed at the right time, also known as currency hedging. 

With over 16 years of experience working with small and large businesses across the globe, Halo Financial understands the importance of a comprehensive risk management strategy and works closely with companies to develop the right solution. 

Businesses must implement the right foreign exchange solution tailored to their individual needs to limit their currency exposure.

What is foreign exchange risk?

Market volatility means that currencies fluctuate on a regular basis for various reasons, such as inflation rates and political events. Times of uncertainty can be particularly tumultuous for currency markets, with recent events such as Brexit and the coronavirus pandemic causing exchange rates to become significantly impacted.

The unpredictability of the market means profits and losses can occur at any given time, so it’s critical to enforce the right solution quickly to ensure that you use currency volatility to your advantage.

As a foreign exchange specialist, Halo Financial can help your business navigate through currency exchange risk to ensure you get the best rate possible.

What are the different types of foreign exchange risk?

The term ‘foreign exchange risk’ can refer to a number of different risk categories, all of which can heavily impact businesses’ profitability and financial performance.

Transaction risk

When businesses buy products from a company abroad, the product price will be calculated in the selling company’s currency. Should the currency of the selling company increase in value against the buying company’s, the buyers would be required to make a larger payment to meet the original selling price.

Translation risk

Businesses with child companies in other countries could be faced with substantial losses when their profits are converted back into the parent company’s currency.

Economic risk

Economic risk refers to how the market value of a business remains vulnerable as a result of currency fluctuations.

Solutions to mitigate foreign exchange risk

At Halo Financial, we offer various innovative foreign exchange solutions, helping small to large businesses get the best possible exchange rate when making their international payments.

Automated orders

Allow your business to save hours of valuable time and protect profits by using automated orders. With this option, companies can select their ideal exchange rate in advance, and trades will only be processed once the exchange rate hits your desired level. This option is ideal for using volatile currencies to your advantage whilst avoiding the need to monitor exchange rates constantly.

Forward trades

Forward currency trades are an option that allows businesses to buy now and pay later. Your dedicated Currency Consultant will work with you to establish an ideal exchange rate, and payment can then be deferred for up to 12 months in the future. 

This option is a cost-effective way to help manage exchange rate fluctuations, allowing you to plan for the future and help businesses budget their overseas payments easily.

Spot rates

Spot rates are an ideal option for businesses that are required to make urgent overseas payments. Companies can immediately agree on an exchange rate and then make payment within two business days. One of our expert Currency Consultants will help you identify the best time to place a trade to ensure that you get the best deal within your limited time frame.