Businesses fail to manage risk from foreign exchange volatility

Over a third of SMEs with foreign exchange currency needs greater than £500,000 a year do nothing to manage the risk arising from foreign exchange volatility, leaving them buying and selling without knowing a final price in sterling, according to research from HSBC.

The survey also revealed that although 75% of SMEs were aware of currency options, the majority believed incorrectly that options were not relevant or available to businesses of their size.

With the current volatility and uncertainty in the global currency markets, HSBC is urging the UK’s small and mid-sized businesses to look more closely at the risks they face from sudden exchange rate movements.

Paul Graydon, head of HSBC’s treasury business development team, said: “Many businesses still perceive foreign exchange as beyond their ability to manage, while others continue to deal in the spot market buying and selling their FX when they need it, simply because that’s what they’ve always done.”

“No well-managed business would buy or sell any other goods or services without a set price in sterling. Consider a UK business importing $1million worth of goods from China. In recent weeks, the pound has traded on the markets anywhere between $1.98 and $2.06. The cost of an import order of this size would have varied by almost £20,000. Only by having a foreign exchange risk management strategy can a business protect themselves adequately from adverse rate movements while retaining some ability to benefit if rates move favourably.”

“At HSBC we are seeing more and more of our mainstream business customers taking on a more sophisticated FX strategy for the first time – once companies undertake FX risk management they very rarely go back to old practices. Currency options can bring real value to any business that trades internationally, giving them the edge in today’s volatile and ever more competitive markets.”

HSBC has six dedicated treasury teams across the UK providing local support for customers worried about the impact of currency volatility on their company’s profitability.

To find out more about how HSBC can help businesses manage foreign exchange risk, visit hsbc.co.uk/business.