Rising inflation, increases in the cost of living and the war in Ukraine are all putting financial pressure on businesses and the impact will have a more exaggerated effect in the creative sector as businesses often cut back on creative outlay when it comes to tightening their belts.
During times like these, managing risk and reducing costs is crucial. Unexpected volatility in foreign exchange markets can wipe out profit margins and dramatically increase costs when it comes to managing budgets abroad if they are not accounted for correctly.
Businesses in the creative industry can be particularly exposed to this when receiving investment from other countries for future projects, managing monthly invoices or hiring staff in different countries. It is therefore imperative that you take the right precautions to protect your income and future project forecasts.
This short guide from Currency UK will provide you with top tips on how you can reduce your risks significantly when managing foreign exchange.
1. Identify your risk exposure: When receiving payments from other countries, it is important to understand a range of different factors to assess how big the risk can be. Some factors to consider are the currency pairs you are dealing with, why you require foreign exchange and how often you plan to make foreign exchange payments.
2. Measure your risk exposure: It is important to understand how an undesirable rate can impact your profitability. A good practice here is also to look at any future events that are likely to influence the currencies you deal with.
3. Understand all your options: When dealing with foreign exchange risk, there are a number of different safety measures you can implement to protect you and your business. Some of these services can include:
Spot contract: this is hedging in a favourable foreign exchange rate will be used for immediate delivery.
Forward contract: this is an agreement that allows you to take advantage of a favourable rate for a future date.
Market orders: These tools give you the autonomy to decide on rates you wish to receive or the minimum rate you are willing to accept. Once this is hit you will then automatically receive this rate.
The creative sector is an industry where understanding how exchange rates can impact your bottom line is crucial and having a foreign exchange expert by your side to take care of your international payments can be a huge plus.
If you have any questions or would like further advice regarding foreign exchange risk management, please feel free to reach out to Currency UK today on +44 (0) 20 7738 0777.
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