Volatile times see food firms hedge bets
Alex Sullivan, corporate director, World First, said that to ensure profit margins are not completely eroded when exchange rates move against firms, judicious hedging enables them to provide business security, budget ahead and protect their bottom lines.
He said that, while most people use brokers and banks to secure a good rate at which to move money on the day, using financial exchange rate tools such as 'forward contracts' can protect firms from adverse exchange rate movements. 'Derivative' products such as 'options' can also help firms benefit from favourable market movements, said Sullivan. "We advise people to use a combination."
Crucial to put safeguards in place
For most small- and medium-sized enterprises, it's not about speculating on the exchange rate markets, but putting safeguards in place to protect their profit margins when rates do fluctuate adversely, Sullivan said. "It's almost impossible to second guess the market in its current state," he warned. "What is important is: is your bottom line protected?"
Currency markets are subject to fluctuations on a daily basis and rates can move by as much as 10% in the space of just a few days, he said: "You can almost make or lose your entire year's profit margin just based on what happens on the exchange rate in one week. The Euro has moved by over 13% against the pound throughout the last 12 months and these troubles look set to continue into 2011."
"So far this year the number of our clients using these products has increased from 30% to 50%, which is a clear indication of how keen importers and exporters are to protect themselves against the volatile markets."
