The global forex market sees an estimated $6.6 trillion traded every single day, while this incredible sector is incredibly seminal in the financial marketplace.

Arguably, the forex market is also influential outside of the financial sphere, as it also impacts on the wider macroeconomy and businesses across the length and breadth of the world.

We’ll explore these impacts below, while asking why you need to be aware of forex trends as an entrepreneur.

Direct Impacts – Forex, the Exchange Rate and Business Costs

While various models have underpinned the forex market throughout history (from the so-called “Gold Standard” to the Bretton Woods System, prices are now regulated by free-floating exchange rates.

This is great news for investors, although it means that major currencies may be a little more volatile when paired against one another and the dominant greenback. 

In general terms, the exchange rate dictates how much you’ll have to spend in one currency when buying a predetermined amount of another. As this fluctuates in real-time, it will have a direct impact on various business and operational costs, depending on whether you import or export items overseas.

The exchange rate involving your domestic currency can move for or against you, so we’d recommend buying currency in bulk where possible at a time when the observable exchange rates are most competitive.

Exploring This in More Detail

Let’s explore this in a little more detail. For example, you may be a UK-based firm that imports materials from the EU.

Let’s also say that the GBP/EUR exchange rate depreciates, creating a scenario where the value of the pound declines against the Euro and the cost of associated imports rises significantly.

Conversely, the same depreciation will benefit those who export goods into the single bloc, as exports become more competitive and sales volumes can increase over time.

Understanding this is key, particularly when timing orders and transactions and attempting to realise the full value of your capital.

Commodities and the Greenback

In instances where you’re sourcing or importing commodities and raw materials from overseas, you may also want to check out how your native currency is performing in relation to the US dollar.

The reason for this is simple; as most commodities and raw materials sourced across the globe are tethered to the US dollar in the marketplace.

As a result, British importers will be interested to note the GBP/USD exchange rate, as the depreciation of this particular pairing will see prices rise accordingly. 

This will translate into increased business costs, which you may be able to negate with knowledge and forward planning.