Simple Guides

Can I protect myself against exchange rate fluctuation?

Exchange rate risk is an important consideration and should always be actively managed. This is best done by netting payments and receipts. However, amounts and timings rarely match exactly, so forward foreign exchange contracts can be used.

A forward foreign exchange contract is a binding contract between two parties to buy or sell a specified amount of foreign currency at an agreed rate on or between a specified future date or dates.

These contracts are offered by all the major banks and allow you to guarantee a future value for your Sterling receipts, thus completely eliminating foreign exchange risk.

It is prudent to compare the spot price (i.e. the exchange rate now) and the forward market price (i.e. the price that the bank will commit to offering you at a point in the future) before agreeing any deal.

Currency fluctuations could be experienced with the exit from the European Union and therefore currency management plans should be put in place.