How could currency swings affect your business?24 March 2011
By Paul O’Sullivan, Head of Trading, Cornhill FX, London
The international leather industry, like many industrial sectors, found itself in a very difficult position after the global economic slowdown of the second half of 2008 and into 2009. For many, trading conditions are still tough. In such unstable market conditions many looked inwards at their own businesses and looked to cut costs and find new revenue opportunities. However, how many have looked at what they are paying out when buying and selling across international currencies?
Whether it be the buying and selling of raw hides and skins, the purchase of capital equipment such as machinery or process chemicals, to the final point of sale of the finished leather. The tanning industry is fragmented and truly global when it comes to importing or exporting materials to make leather and finished leather products. Yet, many in the leather business have never considered that they might be losing out when conducting day-to-day business transactions in different currencies. With expert help your business could save significant sums by using exchange rates that your local bank will not or is not in a position to offer.
If you do not have an FX specialist in your Finance Department, how can you prevent currency risk from damaging your hard earned profits?
A major factor to managing any issues in this area is that every situation is unique to the particular circumstances, which requires an exclusive strategy.
Most firms will use their bank for this purpose, but the unattractive rates that are normally on offer will usually result in the process becoming overly expensive.
Even the most experienced professional traders are unable to confidently predict where a particular currency is likely to end up, and the best option is to take away the risk of the rates moving the wrong way. So what is the answer?
You use an ‘Authorised Independent FX Broker’. Not only can they save you money on your usual currency transactions, but they should be able to explain in simple terms what the process entails and offer a personalised service. It is important to check that any broker that carries out such business is authorised by the relative regulatory bodies-such as the Financial Services Authority in the UK.
By using a specialist broker, such as Cornhill FX in London, the rates of exchange should always be significantly better, leading to a significant reduction in costs. Another advantage is that corporate clients will have a dedicated broker who will be able to provide a bespoke service, and establish an understanding of your specific requirements.
Here is an example of how a broker could save companies serious money when handling their currency business:
Example of savings
A hypothetical tanner in Italy has to buy an amount of $100,000 to settle a shipment of raw hides or skins from the United States. The current rate on offer to fix the rate from a typical mainstream European Bank (on December 16) would be $1.31-which would cost €76,335.88 plus fees of around €50 for the transfer abroad.
Cornhill FX could do the same transaction at a rate of $1.3250 - costing €75,471.70 with no extra costs. The net saving by using a currency broker in this example would be almost €1,000. As a general rule the savings would generally be around 1% of the value of the deal.
It is not only the ‘major’ traded currencies that Cornhill FX are able to handle. If companies need help with business involving the Indian Rupee, Thai Baht, Mexican Peso, Hong Kong Dollar, Turkish Lire and South African Rand and many more they have experts on hand to assist in any way that they can. Tables 1 and 2 show currency fluctuations towards the end of 2010.
For more information please contact Cornhill FX and quote Leather to receive preferential rates of exchange.
Cornhill FX is authorised by the Financial Services Authority as an Authorised Payments Institution FSA number 504494. Cornhill FX is part of the Cornhill Group of companies and registered with HM Revenue and Customs in the UK under reference 12267307. Cornhill FX complies with all the relevant money laundering regulations (MLR).
About the author
Paul O’Sullivan joined Cornhill FX in 2007, bringing with him over 30 years experience in the foreign exchange market. He has held various senior roles in Financial Institutions around the world, most recently as Senior Manager at Saxo Bank in Denmark and Director of Foreign Exchange at the Bank of Montreal. Prior to this O’Sullivan was Chief Dealer at Toyo Trust in Tokyo and Head of Foreign Exchange at Banque National de Paris in London. The majority of his career was spent in the Lloyds Bank Treasury Division from 1976 to 1996, managing the dealing rooms in Tokyo, Singapore, New York and London.