A manufacturer’s guide to unsettled money markets
by Jeff Gladwish
Volatility in foreign markets doesn’t only generate headlines, it impacts the bottom line for companies that sell their goods and services or buy raw materials abroad.
Toronto—Volatility in foreign markets doesn’t only generate headlines, it impacts the bottom line for companies that sell their goods and services or buy raw materials abroad.
Financial crisis across European markets have been influencing the Canadian dollar’s position against the U.S. greenback for months.
Since Canada ships about three-quarters of its exports to the U.S., manufacturers and exporters watch even the slightest market fluctuations with great interest.
And if your profit margins are in the four per cent to five per cent range, even slight movements can your impact your business results.
While you may not have the time and internal resources to monitor markets on a daily basis, you can build a cushion of predictability into your business plans with the following tips:
Stay informed
Get comfortable with market lingo—visit foreign exchange (FX) sources online and read news articles, watch tutorials and study glossaries. Sign up for updates from foreign exchange specialists and news outlets to stay on top of major trends and issues that can affect your business.
Be realistic and forward-looking when budgeting
Set your budget slightly below the current exchange rate to cushion it against negative market movements. Look ahead at known costs like regular invoices and set them in your local currency via forward contracts. According to a [2010 Bank of Canada survey, 50% of foreign exchange hedging] is executed through forwards for corporate customers.
Forward contracts involve locking in an exchange rate for a pair of currencies that you trade in for a fixed period of time. They lend predictability to budgeting and forecasting; simplify accounting by reducing swings in the value of overseas assets and liabilities; create smoother cash flows; and lower the cost of interest payments on foreign currency debts.
Let an expert handle your FX
Navigating the complex world of foreign exchange can be as baffling and frustrating as learning a foreign language. Working with a foreign exchange services provider can be like having a personal translator. They have the expertise to help you make informed decisions and protect your business from adverse exchange rate fluctuations.
When you find the service and specialist that’s right for you, you’ll suddenly feel a lot more fluent in FX.
Jeff Gladwish is Director, Business Development, Global Foreign Exchange Services in Canada, responsible for the FX International Payments business in the Canadian marketplace. Contact Jeff at jeff.r.gladwish@aexp.com
