Ask the Experts - Live Currency Q and A

Webinar posted by William Barns-Graham, on behalf of Open to Export

In September 2015, as part of the Open to Export Food and Drink month, we hosted a live Q&A on currency. It was the first time we ran this format whereby attendees submitted questions in advance of and during the live session. Our panel answering the questions included Sean Cooke (HSBC), Nick Cuff (Sales Generator), Gary McGann (Beyond the Bean) and Paul Vallely (The Rughouse).

Questions asked

Here is a brief summary of the questions and answers from the session. To listen to the answers in more depth, watch our video recording. The timings of each question are provided.

Should I quote in my own currency or in the currency of the person I’m buying from? (7:25)

You have more control if you quote in your own currency but if you want to be more customer-oriented it might be wise to consider quoting in their currency. In the quote, state the % of movement either side of the quoted price for which that quote remains valid – allow yourself to reprice if it moves beyond the quoted parameters.

How can you predict currency movements and what’s the best way to protect margins from fluctuating rates? (12:50)

You can use trade options and forward purchasing contracts to lock in at a future rate. Talk to your bank or currency provider to find out about rates at the time of transaction.

What are the pros and cons of using a bank or a foreign exchange bureau? (20:45)

If you’re a small business, make sure to benchmark everything you do to ensure points of comparison. Currency brokers tend to be more customer-oriented because they’re set up to focus solely on their currency service. Banks have lots of different streams to manage, of which currency is one. Banks design online services to make the process as easy as possible for the customer to do the transactions themselves. Use whoever will give you the best attention and service.

When does it make sense to set up an account in another country? (30:50)

If you’re receiving and paying in the same currency in a country, this is an effective way of mitigating against fluctuating rates.

What impact has the strengthening pound had and what can you do to mitigate against impact on margins? (35:40)

The strengthening pound has definitely impacted sales in Europe and companies have had to reduce margins in some areas. You can mitigate against this to some extent by buying in Euros. For long-term relationships, it might be best to preserve them and take the hit on the margins in the short-term, but for the long-term, you may want to consider these relationships.

How can you mitigate against double conversions? (39:00)

It depends on the country you’re trading in. If a bank is making the payment for you, the conversion shouldn’t happen. If you’re using someone else and there is double conversion happening, find out who is doing that transaction and find out what they’re doing.

Is it possible to get a fixed spread and fixed cost regardless of currency and is this transparent to the client? (41:45)

It depends on the currency – banks will treat this on a currency by currency basis.

If I import from China, which currency should I use for the contract price? (43:14)

Dollars are common in China and Renminbi is fully tradable in the UK. Lots of currencies are available, you need to decide which one is best for your business.

What are the typical fee structures with foreign exchange brokers and is it normal for them to ask for a deposit if you set up a forward contract with them? (45:25)

Most work on the basis of taking money for making the transaction happen – that’s their business model – so there shouldn’t be other charges. It’s quite normal for a deposit to be taken with a forward contract but this depends on the provider.

Would it make sense to set up a Euro account in a country where we do a lot of business? How easy is it to set up overseas bank accounts? (47:40)

It depends how often you trade there and the ease of setting one up can depend on a case by case basis – you should hire a relationship account manager to do this. You’ll need to do your due diligence for setting it up in a country in which you are not located – there are certain criteria that need to be met.

Most people use banks for currency transactions

We ran a couple of polls during the session as well. The first was on what solutions attendees used to manage their currency transactions. 47% of attendees said they used a bank.

Strength of the pound impacting UK SMEs

And the second poll asked what impact the strength of the pound was having on companies’ margins. 57% said the strengthening pound is having an impact.

strength of the pound