Currency fluctuations to cause major losses

29.04.08

According to the research commissioned by Investec Bank, a company conducting £2m of foreign exchange (FX) could be exposing itself to losses of up to £320,000 by failing to protect its FX transactions.

And FX spending is set to increase: 85% of companies are expecting their foreign exchange exposure to increase or stay the same over the forthcoming year. Despite this companies are failing to protect themselves – 60% of small and medium-sized companies who say they expect to be conducting business in a foreign currency in the next 12 months have no formal strategy in place to manage their foreign exchange risk. This equates to 37,000 companies across the UK.

James Arnold, head of FX at Investec Capital Markets said that these findings prove that small and medium-sized businesses are failing to protect themselves against the business threat of currency rate movements.

“Current market turmoil and the prospect of a global economic slowdown make it even more important that companies adopt formal foreign exchange hedging strategies as margins tighten,” warned Arnold.