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How to mitigate currency risk

Currency market volatility and supply chain interruptions caught out hundreds of companies during the early weeks of the COVID-19 outbreak, highlighting the importance of managing foreign exchange risks. On 20 March 2020, sterling fell to its lowest level against the US dollar for 35 years, with the GBP/USD exchange rate moving from 1.3157 to 1.1494 in the space of a few days. If they haven’t already done so, company directors with significant overseas transactions should move quickly to help mitigate against further volatility.

Those seeking greater visibility of their future costs may opt to use a forward contract like the ones offered by WorldFirst. Forward contracts allow you to secure an exchange rate for a defined period in the future, helping with cash-flow planning and potentially mitigating currency risk.

By embracing this approach, company directors can budget for future revenues and book transactions ahead of time while funding them at a later date.

The World Trade Organization suggests the pandemic may result in increased levels of international trade longer term, which means the use of currency risk management solutions could become a popular and prudent choice for businesses. Read more about the importance of managing currency risk on the WorldFirst website.

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