What is foreign exchange risk?
Foreign exchange risk (also known as currency risk or exchange rate risk) is the potential for your business to lose money when trading across borders. This is due to movements in the currency markets.
Exchange rates are constantly fluctuating. There is a myriad of factors that can impact the currency markets — all outside of your control.
These fluctuations can increase your business’s costs. And in turn, impact your bottom line.
What types of businesses are impacted by foreign exchange risk?
Foreign exchange risk largely affects companies that import and export goods.
Let’s say you own a British business that imports materials from Germany. If the euro appreciates against the pound, then the cost of importing will increase.
Eventually, you will need more pounds to buy those materials than you did before.
Paying invoices overseas
There’s often a gap in time between agreeing the price of a purchase and paying an invoice. This could be the case if you pay an invoice only once the goods have been delivered.
The risk here is that the exchange rates can move in the time between you agreeing a price and actually paying for the goods.
If the exchange rates go against your favour, you can end up paying more than what you originally agreed.
Mitigating these risks
Despite the endless speculation, nobody really knows where the exchange rates will go.
It may be tempting to try to time transactions to garner maximum value. But this is incredibly difficult to do. And it can come with some nasty surprises.
But there is a way to protect your business from foreign exchange risks.
Mondo’s innovative hedging solutions allow you to lock in a favourable rate of exchange for an agreed timeframe. Essentially, you can hedge your bets.
You decide how much you want to hedge, when you want to hedge, and for how long.
Whatever happens in the world, wherever the exchange rates go, you can rest easy, knowing that your funds are protected.
Expert guidance, every step of the way
If you don’t have experience in foreign exchange, jargon such as FX risk and hedging solutions may sound perplexing at first.
But there’s no need to worry. As a Mondo client, you’ll receive on-hand guidance from a foreign exchange specialist. An expert in the currency markets, this person will guide you through your hedging strategy and keep you abreast of market news.
*risk management services offered are provided by Global Mondo Partners SL