WHETHER your company is a fledgling start-up or a rapidly-expanding SME, your organisation is likely exposed to currency risk.
Even if you don’t have an overseas operation or sell directly to international customers, you may be importing goods or services or working with suppliers and vendors with overseas connections, which can leave your organisation vulnerable to FX risk and significantly reduce your profit margins.
And given the recent spate of global trade wars has significantly increased volatility in the currency markets, now more than ever small companies need to be aware of risk associated with currency movements and understanding how to mitigate that risk while limiting losses.
By implementing an effective foreign exchange risk management strategy, your company can minimise FX exposure, limit foreign exchange losses and better manage the unpredictability of the currency markets.
To avoid incurring an unexpected black hole in your balance sheet, you should consider these five practical steps to managing your FX strategy.
1. Calculate risk exposure against profit potential
As a small or mid-sized company decision-maker, is it worth your while to expose your firm to foreign exchange risk? That's a fair question to ask.
If you're primarily making smaller payments overseas, the need for a substantial FX risk program is relatively low.
Yet if foreign exchange transaction activity is high, you'll need a strong risk and volatility FX campaign in place, if only to accurately gauge the downside of rates decline against your currency position.
2. Mitigate risk outside the FX market
Smaller companies can reduce FX rate risk and volatility by hiking costs for their goods and services in foreign markets.
They can also curb potential downside risk by reaching out to international business partners and customers and asking to transact in a different currency, such as USD or a reserve currency.
3. Ensure you have accurate information
Given that information is paramount when conducting business overseas, you'll want to connect with accurate and reliable foreign exchange data sets.
Make sure your forex data provider offers a reliable flow of accurate real-time spot and forward FX rates, providing everything you need to make an effective FX trading decision.
This will not only make it much easier to track and transfer foreign currencies, but level the FX playing field so you can benefit from currency swings in your favour.
4. Keep transactions in widely-used currencies
To reduce risk, SMEs should invoice overseas business partners, suppliers and customers in major currencies such as the pound, US dollar or euro.
This reduces currency volatility and paves the way for overseas clients to grow more accustomed to dealing with major global currencies, which further eases the burden of FX risk for smaller companies.
5. Be more aggressive about FX hedging
Working in tandem with foreign exchange specialists, small and medium-size domestic businesses should seek out opportunities to purchase foreign currencies when rates are in their favour. This gives companies a valuable hedge against weaker foreign exchange rates.
With proper strategies in place to mitigate foreign exchange risk, SMEs can not only limit losses, they can also open up a host of opportunities overseas. This may even enable them to profit from FX volatility in some cases.
As such, it is essential that you create a blueprint outlining what FX risk means to your company, while establishing crystal-clear risk management goals and guidelines. Seek out experienced financial service providers who are accustomed to dealing with FX rate issues overseas.
Kazuaki Takabatake
Thu Dec 13 2018
Whether your company is a fledgling start-up or a rapidly-expanding SME, your organisation is likely exposed to currency risk. -Filepix
ISIS Malaysia's perspective of Budget 2025
An excellent rakyat-centric budget under the overarching principle of a caring and humane economy.
Budget 2025: Record increase in STR, SARA aid initiatives
The government will provide a significant boost to the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) initiatives next year.
Budget 2025: EPF contributions to be made mandatory for foreign workers – PM Anwar
The government plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF).
What policies to expect from Indonesia's new President Prabowo
Prabowo will be open to foreign investment, his aide has said, such as by offering investors management of airports and sea ports.
Budget 2025: Govt allocates RM470 mil to empower women's participation in PMKS
The Women's Leadership Apprenticeship Program will be intensified as an effort to produce more female corporate personalities.
Israel sends more troops into north Gaza, deepens raid
Residents of Jabalia in northern Gaza said Israeli tanks had reached the heart of the camp, using heavy air and ground fire.
Indonesia ramps up security ahead of Prabowo's inauguration
Prabowo Subianto will be sworn in as Indonesia's president on Sunday with Vice President-elect, Gibran Rakabuming Raka, also taking office.
Immediate allocation of RM150 mil for local authorities, DID to tackle flash floods
Datuk Seri Anwar Ibrahim said this allocation is intended to address the recent flash floods that hit the capital and several major towns.
Budget 2025: Sabah, Sarawak to continue receiving among highest allocations - PM
Sabah and Sarawak continues to be prioritised under Budget 2025, with allocations of RM6.7 billion and RM5.9 billion respectively.
NFOF will be operational in November 2024 with funding of RM1 bil
PM Anwar Ibrahim said NFOF will support venture capital fund managers to invest in startup companies with RM300 million set aside for 2025.
Minimum wage to increase to RM1,700 effective Feb 1, 2025
The Progressive Wage Policy would be fully enforced next year with an allocation of RM200 million, benefiting 50,000 workers.
Bursa Malaysia ends higher on Budget 2025 optimism
The benchmark index, which opened 1.85 points higher at 1,643.29, moved between 1,641.71 and 1,649.31 throughout the trading session.
Five important aspects relating to people’s lives in Budget 2025 - PM
The focus is on driving the MADANI Economy, speeding reforms, cutting red tape, raising wages, and tackling the cost of living.
Economic outlook: Govt plans to leverage, expand existing city transit system
The expansion aims to provide a more efficient and reliable public transportation network, reduce congestion, and improve accessibility.
Economic outlook: Budget 2025 to lay foundation for a digital-driven economy
The report said Budget 2025 will entail efforts to position Kuala Lumpur as a top 20 global startup hub by 2030 through the KL20 initiative.
Economic outlook: Corruption and lack of accountability hinder economic progress
Special Cabinet Committee on National governance is established to curb corruption, law reforms to modernise outdate regulations, MoF said.
National Wages Consultative Council will be strengthened
The govt will also incentivise hiring women returning from career breaks, offer job matching and improve care services facilities.
Economic outlook: Ensuring 11 years of compulsory education for all children
Budget 2025 will continue prioritising upskilling and retraining initiatives to equip workers with the latest skill sets necessary.
Consolidated public sector projected to record lower surplus of RM41.7 bil 2024
The MoF said the consolidated general government revenue is estimated to increase slightly to RM384.7 billion in 2024.
PM announces substantial Budget 2025 hastening Malaysia to become Asian economic powerhouse
Datuk Seri Anwar Ibrahim said it would create jobs and also tackle financial leakages to enhance public spending efficiency.