Most of the businesses / investors are affected these days, directly or indirectly, due to forex fluctuations. Tapping the forex movement is almost next to impossible when you and your team is completely involved in running the business and the necessary expertise and skillset is hard to find. It shouldn’t be a shocker to you if we share with you this fact that Everyday Trillions of Dollars are transacted. Normally, the movement between two currency pairs is 0.5% to 2% but sometimes due to geo-political extremes, it may even extend to ± 10%. Please note: This is Daily Movement.
You may be an Importer of goods or services or an exporter. What’s Input for you is always an Output for someone. In this complex supply chain system, geographical boundaries doesn’t exist anymore but countries’ borders do effect the valuation and pricing game.
Foreign currency payments (inflow/outflow) can happen for different reasons –
- Exchange of goods and services
- New investment / Buying treasuries, bonds or stocks
- Dividend payout / Pulling back of Investment
- Import in one currency and Export in another
- Expansion to other countries
In this age of globalization, foreign currencies are constantly moving in big volumes, where investors, companies, banks, institutes and speculators are active participants. But not very surprisingly. 90% of the companies don’t even have a treasury department. Those who have, they either don’t have a technically sound team to strategize the forex movement or they will have generally accepted guidelines not to indulge in forex hedging. In the second scenario, their team will either keep the forex risk exposed to spot rates or hedge it for the whole of the year at the time of finalizing the budget. “The End of the Story even before it has started”. Many companies try to hide their risks by accepting invoice pricing in a fixed currency say USD instead of the local currency. They should realize that by doing so the exporter has already factored in their foreign currency exposure risk. Multi-layered cover ups as nobody wants to manage the Risk.
The fear of unknown and inbuilt insecurities, what if the market turns against me, lead to taking away the risks from your table. There are always two possibilities –
“Feel Safe or Fill the Safe”
The most important part of forex accounting is that the notional losses, opportunities lost, profit possibilities never gets recorded as prices at different times are part of the events but doesn’t lead to any transaction. The beauty of this forex market is –
“Your Loss is somebody’s Gain”
So, who really Gains? Your bank, who knows your forex requirement / exposure, make some gains and the bigger pie is grabbed by the Big Institutes or the Speculators.
There are other nuances involved in forex transactions. Only an Expert’s eye can catch it to derive benefits.
Automation & Knowledge Based Strategies working in tandem Turn your Forex Exposure Risk into Profitable Opportunity
As we are promoting the concept of Bright i.e. Beyond Right, we dug deeper and found out that there is another bigger variable sitting underneath the fluctuating forex prices. And that is the Commodity Price.
Locally what effects your pricing is only the Input pricing but globally its dual effect of commodity pricing in combination with forex price. Take an example –
A 10% increase in forex price with a simultaneous increase of 10% in commodity pricing has an overall impact of 21% on your pricing. Now let’s apply the above scenario in a company’s P & L account
In the above simple example, the gross margin drops by 40% because of Input price and forex price fluctuation. In a competitive and price conscious local market, it can very easily wipe out your Profit.
You are no more in a business of just selling your products and services. Go Beyond. Realize that your business is in the midst of such market fluctuations. Prudently, you have to guard and reward yourself amidst such fluctuations in Input and Forex prices.
Our approach is simple. We bring the treasury function into proactive existence, provide a complete solution with excellence. We convert the Treasury function (cost center) into a Profit center.
We merge the two roles into one i.e. commodity purchasing / pricing is done by purchasing or supply chain department & forex payments are done by treasury / finance department.
The solution what we provide entails forex cum commodity pricing strategy
How do we make it possible?
Spot rates are quite far away prevailing in the future. And normal hedging like forward contracts or vanilla options are simple shut and forget strategies.
We remain active in the Realtime market for you and provide you with our proactive solution in two (2) steps –
We don’t know which way the market will move in the long run but we know how it moves. We don’t know when and which factors will influence the market but we surely know the after-effects.
We have a sound technical team, with umpteen expertise and solid risk management tool. Since the market remains awake 24/5, so we have developed Automated Programs to track / tap the movement / fluctuation.