Export virgin – concerned about currency rate fluctuations

Question

Greetings
We are on the verge (at least I hope we are!) of a significant European contract with a major player in my market.
They have asked for a 12 month price an various goods we supply, what scares me is the possible rate fluctuation. Any experienced companies who can guide me on rates etc?

Answer

Hi Ian,
As you are a UK based company you are perfectly entitled to offer a sterling price and they pay you the sterling figure.
If you have already committed to quoting their currency (Euro ?) then yes you need to think about the potential spread, and depending on what margin you are playing with you will have to take the spot rate at your bank when the Euros hit you account. If you did not think of this at the beginning of your price negotiations and your wholesale margins are not big, then you are right to be scared. You can look at yahoo.com currency converter to see historical spreads.
On the other hand you could enter into forward contracts with your bank .
Talk to them and they will explain what they can do ,and your cost.
Gilio

Answer

Hi Ian, as Gilio has already suggested, pricing in GBP if possible de-risks against fluctuations. We are a translation company, so most of our work is spot contracted on a job by job basis. We had experience of a large project which we originally quoted on around 18 months ago, it kept being delayed client side, and by the time they were ready to order the exchange rate was 10% lower, we had no choice but to renegotiate. A lot of clients are really flexible on currency, If you are fixing against some currencies its obviously easier, e.g. Euro fluctation isn’t normally massive over a 12 month period, but you clearly need to build in a margin on your costs to cover the exchange risk if you forward price. Hope this helps. Regards, Mike

Answer

Hi Ian,
As Mike and Gilio suggest the best price is sterling and then you’re covered. The fluctuation is then always with your customer not you, but if you are trying to build a business and show goodwill you may feel you should offer pricing in another currency like Euros is needed.
Personally, I would try and avoid .
The other thing to suggest to you is that you offer a price for the year, but add that you are entitled to review pricing and in some circumstances may need to adjust those prices with
one month’s notice to the client. It gives you some protection to a whole year.
Good Luck

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