Keith Spitalnick

Regional Manager - Spain

Currencies Direct

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Forward contracts can help you to reduce the risks of fluctuations in the currency markets which affect any business that trades or has assets overseas.

You can lock in an exchange rate for a specific amount of currency with a forward contract so that you can use it at a later date, without having to use up valuable working capital.

If your business exports or imports has assets or operations in another country or simply sends and receives money internationally you need to consider how you will protect yourself against changes in foreign exchange rates and other foreign exchange risks. A small variation in the rate could cost your business thousands of pounds if not managed properly. Our years of experience help to protect your bottom line and asset base.

At Currencies Direct we offer two types of forward currency exchange contract:

Fixed forward contracts You take delivery of your forward currency on a specific date in the future.

Open forward contracts You can take delivery of all the foreign currency at once, or drawn down smaller amounts as you need them - up to the amount of the value of the contract.

How does a Forward Contract work in practice?

Imagine you are a company with a need to purchase components worth 250,000 euros from a German supplier in 5 months’ time. Based on a GBP/EUR exchange rate of 1.20 EUR, you have determined that supplies will cost you today GBP 208,333, meeting your budget and cash flow constraints. On this basis you commit to purchase the components, and you agree to sell them to a client at a fixed price, generating GBP 10,000 of future profit to your business.

However, GBP might weaken against EUR during that five month period to a rate of 1.15, meaning that your cost would increase to GBP 217,390 . This would negatively impact your budget, cash flow and reduce your profit by GBP 9057 essentially eliminating all the profit margin.

In this case, if you booked a forward contract with Currencies Direct at the time you purchased the components you would have been able to secure the exchange rate of 1.20 , fix the cost to your business and avoid any unexpected impact on your profit margin. Of course, you would lose out if GBP strengthened against the EURO, but exposing your business to currency risks may have a long term effect , whereas if you buy forward you can guarantee an exchange rate based on where you cost the order.

Currencies Direct forward contracts can also provide flexibility enabling you to take delivery of your purchased currency in part or in full at any time between the contract date and maturity date. All companies with foreign currency exposures need a strategy to manage the risk. Call your dedicated dealer now who will tailor-make the contract to suit your business needs.

Important information

If you do plan to book either a forward or time option contract you may be subject to additional security payments in the event of adverse exchange rate fluctuations. Such security payments must be received within 24 hours of notification. In the event you should have any questions please contact your dedicated dealer at Currencies Direct where they will be more than happy to assist. Further details and information is available to you by clicking HERE