Currency hedging strategies for businesses
Buy or sell a fixed amount of currency with a forward contract. WorldFirst will offer you a guaranteed rate at which you can transfer during the tenure of your contract.
A forward exchange contract with WorldFirst can be entered to facilitate payments for identifiable goods, services or direct investment (making a capital investment in an enterprise to obtain a lasting interest in it).
How do Forward Contracts work at WorldFirst?
Forward Contracts help protect SMEs against currency fluctuations without having to buy currency upfront on the spot market. The forward price is always based on the current spot price. The spot price is the current market price at which a currency pair is bought or sold for immediate payment and delivery. We offer a fully transparent pricing model, which sets the forward contracts being offered apart in the marketplace.
What is a forward contract?
A forward contract is a hedging product that enables businesses to protect themselves from currency exposure and market volatility.
They work by fixing the rate of exchange over a set period on a pre-determined volume of currency and are used to help protect buyers from fluctuations in currency price.
There are different forward strategies which can be executed depending on your individual business needs.
Why hedge using a forward contract?
Locking in an exchange rate with a forward contract allows your business to protect its profit margins and internal budgets, whilst remaining competitive.
You will stay in control and create predictability of your cashflow. Given that currencies are traded around the clock, 24-hours a day, it makes sense that exchange rates are in constant flux. With this in mind, it's easy to see how forward contracts enable forward-planning.
What can happen if you don’t hedge?
- Reduce predictability of cashflow and put your internal budget rates at risk
- Business could suffer potential losses to profit margins because of adverse currency fluctuations
- You may have to raise prices in order to protect profit margins following a significant change in the rate, and therefore become non-competitive
Forward contracts – the benefits:
✔ A rate can be fixed, providing certainty over your profit margins. The exchange rate would be locked in for the entire length of the forward contract, providing you with a guaranteed rate of exchange.
✔ If the market rate moves against you, you will not be negatively impacted as you have locked in an exchange rate.
✔ Help with future cash flow planning and potentially mitigating currency risk
Currency hedging strategies for SMEs
Why are Forward contracts useful for your business?
Below are some examples where a forward contract might be useful for a business:
How to book a forward contract with WorldFirst
Give us a call on 1800 744 777 and one of our expert relationship managers will explain the variety of hedging strategies available.
Are you a newly trading customer?
Your relationship manager will clearly cover the below terms to ensure you are comfortable with the conditions of the forward.
These terms include:
The currencies involved
Rate of the contract
Tenure (length) of the contract
Determining whether you require a fixed, flexible, or window forward
Explaining deposit/initial margin requirements, in case a credit facility is appropriate to help cover initial margin requirements
Understanding if you will be using this (forward bought) currency in relation to the sale or purchase of goods or services, or for direct investment
Get an account with WorldFirst
At WorldFirst, we have two different accounts depending on what features suit your business needs. Both accounts are free to open and maintain and come with a dedicated relationship manager that will provide you with any support and assistance you may need.
For more information on what account you need for your business requirements, visit our business page to find out more.
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