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26th January 2012
From footballers to furniture - put a cap on import costs
Football transfer season provides valuable lesson to importers
The January football transfer season has provided a stark reminder of the impact the volatile foreign exchange market can have on UK importers, according to commercial foreign exchange specialists, Raphaels Bank, the leading independent bank. Just a few points fluctuation in the value of the Pound against the Euro could have seen Newcastle United having to stump up another £200,000* on top a £10m deal for Senegalese International forward Papiss Cisse from SC Freiburg.
With imports from Germany topping £41,107m in 2011 (up 8.7% on 2010) and goods and services coming into the UK from Denmark rising a staggering 51% last year, Raphaels Bank is warning that many businesses are leaving themselves exposed to exchange rate volatility and major unforeseen costs.
"Whether it's a footballer, a consignment of furniture or a relatively small order for food and drink products, any business buying in goods or services from abroad must take sensible steps to protect themselves" says Tony Wilson, Director of Commercial Foreign Exchange at Raphaels Bank. "FX market rates of exchange can move very quickly and over a day the slightest movement in points can result in significant gains or losses in capital. The key is to work with a partner with a clear understanding of market information which will help protect profit margins."
"Forward contracts allow importers to lock in a rate of exchange in advance for delivery of funds on a future date. Once a rate is secured, the settlement currency equivalent is fixed for the duration of the contract, thereby protecting profits from erosion by fluctuating exchange rates. Some CFX providers such as Raphaels Bank allow businesses to lock in rates up to one year in advance. This ensures companies can monitor the market for favourable rates and secure funds for upcoming needs whilst achieving their costing levels for pricing catalogues and online services.
"With continuing uncertainty in the Eurozone and a struggling UK economy, importers should be looking at ways to make international trade as efficient, cost effective and risk free as possible. Understanding the benefits a solid FX and international payments partner can bring to a business will certainly go a long way to achieving stability and growth."
*The sterling/euro pairing has seen a disparity of 0.0194 points between the highest and lowest daily average exchange rate in January. Point fluctuations for a transaction of £10m could wipe out almost £200,000 from a transaction or add the same value to the payment once completed. To date, the daily average low pound sterling to Euro exchange rate in January of this year has been 1.1966 compared to a daily average high rate of 1.216.
