Risk Management

Nothing in life comes easy, and that’s true for foreign exchange. Any business that opens its doors to the wider world is exposed to currency fluctuations. The value of your cash flows can shift from one moment to the next, depending on what’s happening in the markets. 

For a business operating across borders, adverse developments in exchange rates can increase costs, hurt revenue and add another layer of stress to your day. 

We offer hedging solutions that can give you protection from negative movements in foreign exchange. These solutions allow you to lock in rates over a given period of time. 

This stabilises the value of your international cash flows. But it also provides a level of relief. You can rest easy in the knowledge that no nasty surprises in the markets will hurt your business. 

Solutions tailored to you  

No one business is the same. As such, we do not offer a one-size-fits-all solution. 

With the guidance of a seasoned Relationship Manager, you make the decision on when you want to hedge, how much and how far forwards. That is, of course, if you want to hedge at all. 

Nothing is set in stone. We offer rolling risk management, which we can review every month or quarter and adjust when relevant to improve performance.  

Speak with a Privalgo team member about how we can help you mitigate risk and bring you peace of mind. 

Case Study: A UK Importer   

A UKbased importer has procured stock from its Caribbean suppliers, which it will sell wholesale to UK retailers. 

The supply chain cost base is USD denominated, with all revenues generated in GBP. So, the business is exposed to GBPUSD exchange rate fluctuations. 

Commercial considerations 

  • The business wins a contract to supply a fixed number of goods per month, at a fixed price per good for six months. Because prices and volumes are fixed, the business cannot pass on any increased costs to the retailer if GBPUSD moves lower 
  • If GBPUSD has moved significantly between one contract period and the next, it is not always possible to pass on this full cost increase into the next price list. This is due to the competitiveness of the industry and can result in a losing margin 
  • In a rising GBPUSD market, the business needs to be able to offer discounts in line with its competitors. 

Objectives 

  • Mitigate risk of GBPUSD depreciating  
  • Gain extra margin from purchasing Dollars at a more favourable rate 
  • Consider the view that now Brexit has occurred, the Pound may continue to appreciate  
  • Find a solution that does not negatively affect business cash flow. 

Hedging solution 

By understanding the commercial requirements and competitive pressures, the business implemented a flexible forward hedging strategy. This contract is an agreement to fix at an agreed rate of exchange on a predetermined amount of currency for delivery within a set window. 

Fixing the rate of exchange gives protection from adverse currency swings to ensure a weakening Pound does not erode your profits. By using a flexible forward contract, the business is not tied into settling on its maturity date. This gives flexibility to take tranches of currency when you choose to help manage cash flow. 

There is also flexibility to buy on spot should GBPUSD rates appreciate, helping a business gain extra margin or offer discounts over competitors’ prices. 

Speak to a Privalgo Representative

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The Simple Steps

1.  Register Online

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2.  Select Transfer

Select the currency you need to buy, get the best exchange rate & tell us where you need it to go.

3.  Fund your Account

Fund your Privalgo account via Bank Transfer.

4.  Transfer Complete

Once we receive your funds, we make the currency transfer. 

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info@privalgo.co.uk or +44 (0)20 3880 0575