Currency Volatility – How To Protect Against It

Currency volatility is a reality of operating in a global market. Trading, investing and even travelling is impacted daily by rates of exchange. And there is no currency more volatile than the South African rand. Local economic factors, linked with global markets, makes managing your foreign exchange a risky business when it comes to the value of the rand on any given day.  

Even a shift of a few cents against a foreign currency can make running a business tricky. Budgeting, ordering and pricing can become an impossible guessing game, leaving you and your customers frustrated with the lack of consistency around the cost of doing business.  

Know your Business

The first step to managing your currency risk is to accept your business has a unique set of needs when it comes to foreign exchange. This requires you to conduct a thorough review of your business cycle to see exactly where currency risk exists. The use of forecasting and planning software can greatly aid your business in how it forecasts future currency needs, and how your profit margins have been impacted by currency fluctuations in the past.  

Managing your Currency Needs

Once you understand your foreign currency needs you can then look at protecting your currency flows through using a number of market tools. However, these are complicated tools and require knowledge of currency markets and what makes them move. Working with experts in the currencies you are transacting in is vital. 

1. Hedging your transactions can offer your business consistency in costing and pricing of goods and services. Hedging means you buy your currency at a predetermined rate ahead of time. So, although you may not be guaranteed the “best” rate, you will know what you will be paying ahead of time, meaning you can plan your business financials around that. Using the right payments provider can also save you a lot of money by offering you the best currency conversions and transactions costs. On large deals this can be a very large amount.   

Reducing your Exposure to Currency Risk

In addition to looking at how to reduce the cost of currency conversions there are other ways to equip your business to ensure it weathers the currency volatility storm.  

Your business can support local suppliers. This means that you pay for goods and services in your local currency. Although local suppliers may be subject to currency fluctuations, your business is more protected. 

Businesses can also look at increasing the export side of their operations, meaning they will be able to take advantage of valuable international currencies. In a digital world, marketing your products offshore is becoming increasingly easier and this is a viable option for any business.  

Seek Advice

Ultimately, the best way to mitigate your currency risk is to seek expert advice. A reputable financial services company with access to the most experienced team of financial specialists, can advise you on a number of key solutions to help ensure you can plan your forex transactions with the lowest risk possible risk.  

We live in a global market, so cannot escape the vibrant, yet precarious, nature of the global currency market. And when you live, operate, and transact in an emerging economy using an emerging currency, the risks are even higher. Careful management of the process, however, can give you a head start when it comes to managing your exposure.