Equals Money Currency FX Hedging

Rising cost of business: How can hedging help protect my bottom line?

Euan Robb
Euan Robb 28 September 2022

The current rise in costs can present many negative effects for business owners: greater operating costs can ultimately lead to reduced profit margins, while customers reduce personal spending due to rising costs in their own lives. With costs rising across the board, every penny counts. It’s more important than ever for businesses to protect their bottom lines – especially if conducting business internationally or across multiple currencies.

Rising costs combined with the high levels of volatility in the foreign exchange market have only highlighted the need for businesses of all sizes to think about potential FX risk and if their current hedging policy (if they have one) will be enough. Read on to learn more about currency hedging and how Equals Money can help your company mitigate risk while contending with rising costs across the board.

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Hedging strategies and policies

A hedging strategy is simply how hedging methods and tools are applied to protect a currency and to a greater extent, your business, from adverse movements on the foreign exchange market.

The planning and implementation of an effective FX risk hedging strategy is often a challenge for businesses, especially those without a dedicated treasury function or department who would ordinarily handle this kind of policy. We’re here to help those businesses who want to help manage risk associated with currency but might not have the time or resources to build a policy themselves for their business.

 Many believe that currency hedging and creating a formal policy for your business is complex, inflexible, and shrouded with confusion and red tape. This is not the case.

 A policy allows you to benchmark exchange rates to a business strategy, identify natural hedging opportunities, pass on or prevent the impact of FX volatility through price adjustments with suppliers or customers, and even include FX market forecasts when pricing contracts.

 All that said, a hedging policy lets you protect your business from undesirable exchange rate movements. No matter the details of your particular strategy, it will limit your business’ exposure to rate and market volatility to provide better stability when trading. This allows you to better predict your outgoing costs and revenue, which directly affects your business’ profit.

Forward contracts

At Equals Money, we believe that FX hedging should be transparent, easy to implement, and should increase certainty on FX pricing. Forward contracts meet all these requirements.

 A forward contract is an agreement made in dealing with foreign exchange that guarantees, or “locks-in” an exchange rate for the sale or purchase of a specified currency for up to 24 months in the future. When trading internationally for your business, a forward contract with Equals Money can mitigate the risk around currency transactions. If the rate is in your favour when the contract is agreed, you are guaranteed that rate for the agreed time of settlement.

Although should the rate continue to move favourably after the contract has been agreed, you’ll still receive the same agreed exchange rate, presenting a potential disadvantage in choosing a forward contract. However, many customers find the stability offered by a forward contract outweighs this disadvantage.

 This tool allows your business to take advantage of favourable exchange rates, protect yourself against adverse currency moves or market volatility, apply exchange rates to future cash flows for budgeting purposes, and lock in profit and loss on future income for overseas projects.1

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What can Equals Money do for my business?

Nobody can predict the movements on the FX markets with 100% accuracy. However, as experts in managing foreign exchange, Equals Money can help your business mitigate risk when dealing with transactions across multiple currencies. Our dealing team analyses market data that’s historically had an impact on the market, informing clients ahead of release how that data will affect them and their business. We use our expertise to evaluate market sentiment, allowing businesses to make informed decisions based on their tolerance to risk.

 Building and implementing an effective hedging strategy is something that not every business has the time or resources to do - but that’s where we come in.

Equals Money provides a bespoke service that can help your business plan for risk, create a hedging policy and strategy, assist in the implementation of that strategy, monitor on an ongoing basis, produce performance reports, and investigate payment options. We do all this while continually managing our relationship with you through a proactive service.

 If you are interested in currency hedging for your business, Equals Money is here to help. With an account from Equals Money, you can help mitigate risk when conducting business across multiple currencies and add a layer of protection to your bottom line, at a time when costs are rising in all aspects of life.

Get in touch today to see how we can help you.

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1Equals Money can only offer forward contracts to facilitate payments for goods and services