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
By Jamie Jemmeson ACSI, MSTA at Infinity International In the previous blog we addressed the ‘What impact could hedging have on your business’, where we unpacked some of the difficulties of recognising your exposure and having the ability to accurately forecast during these COVID conditions. Given the current backdrop in the UK, now could be an opportune time to consider your framework for managing your foreign exchange risk and what level of flexibility you require. In short, given the current circumstances does your current approach offer you the flexibility you need? Before addressing the flexibility which various products can provide, it is important to take note why this could be significant in the second half of the year. Concerns of COVID second wave – data from the US is starting to prompt fear of a second wave which could weigh on sentiment and impact currency markets. Brexit “No Deal” re-emerges – the UK have declined on extending the transition deal beyond 2020. Recently PM Johnson stated that the UK would be prepared to accept an Australia-style Brexit trade deal, which is not considerably different to a 'no deal' Brexit. UK monetary policy - The possibility of negative interest rates is still not being ruled out by the Bank of England as a policy tool if the economy takes a turn for the worse. The above factors could have an impact on currency volatility as well as the supply and demand of goods. If this happens, as a business you
By Jamie Jemmeson ACSI, MSTA at Infinity International This week the UK saw the reopening of non-essential retail shops, and while restrictions are being lifted the uncertainty and volatility faced by businesses remains. The current context could be an opportune time to consider the nature of the risk foreign exchange exposes your businesses to, as well as the impact of recent currency volatility, and then, against this backdrop, to re-assess the effectiveness of an existing hedging strategy. We put forward 4 questions in our introduction to the series “Points to Consider Before FX Hedging in COVID-19 Conditions”. Last week, we tackled Question 1: “Can Your Business Identify and Understand its FX Exposure?”. This week we are going to unpack Question 2: ‘What impact could hedging have on your business?’ FX risk and the business impacted Foreign exchange (FX) poses a risk to any business with an international trade exposure, the question is how does your business manage this risk (through hedging or by other means)? The objective of hedging is to achieve certainty through fixed foreign exchange rates which can in turn protect a positive target margin. Under COVID-19 not only have many businesses experienced changes to the way they operate but many currencies have traded to extremes; for example, during the month of March, GBPUSD was more 13% lower than where it started the year as COVID-19 fears escalated. Payments to international suppliers Has the business changed its international suppliers during COVID-19 and would that allow netting of currency exposure?
By Jamie Jemmeson ACSI, MSTA at Infinity International Last week, we published an article on “Points to Consider Before FX Hedging in COVID-19 Conditions”, where we highlighted some of the talking points when considering either implementing a new FX policy or adapting your current hedging strategy. We understand that perhaps now more than ever, risk management is a priority for businesses, which is why we will go into detail answering the 4 questions we posed, assisting business to prepare in the coming weeks and months as we re-enter the markets under COVID-19 conditions. This week we are going to unpack Question 1 in more detail: Understanding your FX exposure. Has your FX exposure changed? Are you now using different suppliers/has your customer base changed focus geographically? Depending on the sector that your business operates, your FX exposure may have either decreased or increased dramatically as result of COVID-19. Before instructing any new FX hedges, you may consider whether demand has increased due to a sudden increase due to situational demand (for example toilet roll) and whether this demand is likely to continue once supply lines and/or trends change. How has this affected your currency requirements and what does this look like over the next few months? Have you changed where the business has sourced its goods? For example, have you adapted your supply chain, sourcing goods from Europe instead of Asia? Has this changed the currencies which you are exposed to? If yes, have you considered the underlying factors