A change in exchange rates can have a big impact on UK business. It could impact the cost of supplies purchased from abroad or the product’s attractiveness for overseas customers. Businesses should keep an eye on the exchange rates worldwide and how they could impact their processes. There may be a currency fluctuation or change in how materials are bought and sold abroad.
At its most basic, a depreciation will make exports cheaper and exporting businesses benefit. Those importing materials will have to pay higher costs for the import. An appreciation makes exports more expensive and the importation of materials more affordable.
A number of factors can impact the exchange rates – from politics to the pandemic. Here are a few ways forex impacted business in the UK.
The economic growth of other countries can have a big impact on business. For example, from 2009 to 2010, there was a depreciation in the value of the Pound. UK exports were cheaper, and other countries could have utilised the lower price. However, the global economy and the EU especially was in recession, so the demand for UK exports stayed low. With forex brokers in the UK, people can check the currency pairs and see where is best to trade through the fluctuation.
Most businesses obtain fixed contracts when they import raw materials. A fixed contract stops any minor fluctuations in the exchange rate from having a big impact on the business. Forward contracts fix exchange rates for a set period, usually around a year to a year and a half. However, major movements in the exchange rate may cause problems with the fixed contract. One party is likely to ask for a review of the contract in this case.
Even if you don’t buy your goods from overseas, the exchange rate can still have an indirect impact on your business. You may need to transport your products to customers via delivery trucks. The exchange rate may have increased the cost of fuel and, consequently, the cost for your shipments to be delivered. You will end up paying more in your local currency to deliver your products. All businesses should keep a close eye on the forex market to watch out for any hurdles.
The exchange rate is constantly changing and fluctuating. The business industry is slowly recovering from the impact of the pandemic and Brexit. Business owners should proceed with caution and closely monitor changes within the forex market. It shows how forex impacted business across the UK.