By Jamie Jemmeson ACSI, MSTA at Infinity International
A fortnight ago, we published our insight piece on “What hedging tools and what flexibility is right for your business?” in our FX Hedging series. We highlighted what we consider to be some of the salient talking points when deciphering the ideas and products available that could warrant reflection during the uncertain times of coronavirus.
Within this FX Hedging series, we published some of the main points and what these could mean to your business in the coming weeks and months as we enter a new phase of life (and businesses) under COVID-19 conditions.
This is our final instalment in the series, where we will unpack in more detail “What facilities are available to your business?”
If you missed the previous articles in this series, you can catch up:
- Points to Consider Before FX Hedging in COVID-19 Conditions
- Can Your Business Identify and Understand its FX Exposure?
- What Impact Could Hedging Have on Your Business?
- What Hedging Tools and What Flexibility Is Right for Your Business
Towards the start of the coronavirus crisis the Government quickly recognised that cash flow could become a big challenge for UK businesses and swiftly introduced various initiatives such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Future Fund to try and assist businesses. Whilst they have not escaped criticism, they have helped to ease the burden.
It has become necessary for many businesses to reassess their appetite towards risk inclusive of banks, finance houses and currency brokers. It is therefore not uncommon during these tough times for the hatches to batten down as mitigating further risk becomes paramount. It is hard to claim that the worst is behind us despite restrictions being relaxed in the UK – the US, for example, is now recording highs on new COVID-19 cases. This ongoing uncertainty is likely to result in a cautious approach when it comes to lending and the availability of credit facilities.
Broadly speaking, foreign exchange markets have seen considerable volatility associated with the uncertainty of the COVID-19 pandemic. As a result, this has meant many SME’s have had to post collateral to support hedging agreements with their FX providers. For some, this may have been the first time they had experienced such cash calls and there were doubtless numerous demands on their cash position at this time making such calls unpopular for an SME battling with the impact of the COVID-19 related slowdown they were experiencing. Hopefully for most, these situations were managed successfully, however the experience may lead some to reassess how they approach FX hedging going forward.
With a need to manage FX risk in your business (see our previous articles in this series) but also a heightened appreciation of the wider implications of a FX hedging strategy, now might be a good time to review your current currency trading facilities and articulating what this means for your business.
This could mean ensuring a broader understanding of the likelihood of future margin calls under different scenario planning – both in terms of the FX rate and the impact of that, depending on the point of the business cycle it occurs at.
Understanding what credit facilities may be available to you to support your FX hedging strategy could be key.
Here are 4 crucial questions your business may consider:
- Has any impact to your desired hedging framework (from not being able to access the right facilities) been considered?
- Do you understand the cost of hedging – by the provider for the level of risk.
- Are you aware of all of the products which are available to you? This is then a question of assessing where the balance lies in terms of cost versus risk impact.
If you have only ever transacted currency with your bank, now could be the time to start looking at using a specialist currency provider to help you manage your exposure. Subject to credit and risk approval, a specialist provider may be able to offer an unsecured credit facility, enabling you to utilise your cash flow in a less restrictive fashion. In addition, a specialist currency provider may be able to offer you products and work with you to develop strategies which may not be possible via an incumbent supplier.
Hedging tools for business
If your business has currency exposure now or in the future, you may or may not have a hedging strategy and access to range of tools which you utilise to manage this. We understand that the world has become a little more uncertain and as we adapt, it will be necessary to review all areas of our businesses for efficiencies in cost and strategy.
Infinity International would be happy to offer a complimentary FX review of your current process to offer a fresh perspective and to highlight any opportunities for increased FX efficiencies. If you would like to organise a time for an exploratory conversation, please leave your details below.
The review would encapsulate:
- Strategy ideation to align FX risk management with your business objectives
- FX volatility assessment to understand the impact of a significant FX rate
- Credit terms to ensure efficiency for cashflow when hedging currency (subject to approval)
- FX pricing to determine your current cost of your current provider vs Infinity International rate
Fill out the below form to receive an obligation free FX review:
Request a FREE FX Review
We’re here to cut through the clutter and industry jargon to provide you with relevant information so you can build your understanding of foreign exchange markets.
This blog post is intended to provide you with information on the services Infinity International Limited (IIFX) offer and should not be interpreted as advice or as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Foreign exchange rates provided therein are for indicative purposes only and are not intended to give an accurate reflection of current currency exchange rates or to predict future movements in currency exchange rates. IIFX is a company registered in England with registered number 06333730 and registered address at Third Floor, 24 Chiswell Street, London, United Kingdom, EC1Y 4YX. IIFX is authorised by the Financial Conduct Authority under the Payment Service Regulations 2017 (FRN: 567835) for the provision of payment services. IIFX is authorised and regulated by the Financial Conduct Authority in the conduct of designated investment business (FRN: 671108).