MONEY MATTERS
DEALING WITH OUR PARTNERS AROUND THE WORLD
Many Finance Directors, Financial Controllers and Managing Directors find themselves preoccupied with monitoring exchange rates rather than focusing on their ‘day job.’
The rise of international trade in recent times is perhaps best highlighted by the 111.5% increase in UK imports during the ten year period 1998 - 2008. It is estimated that around 165,000 UK businesses import goods from overseas whether as raw materials or manufactured component parts.
WIND ENERGY SECTOR
This trend has been particularly evident in the wind sector with more and more UK wind businesses buying in European and Far Eastern components. German engineered mechanics, cables from Japan and carbon fibre from China are all regularly imported elements of the wind turbine equation.
CURRENCY ISSUES
Suppliers of these products will predominantly require payment in their local currency or – in the case of the far- east – in US dollars. As a result, British wind energy businesses are finding themselves exposed to a new threat, foreign currency risk.
FOREIGN EXCHANGE MARKET The foreign exchange market is the world’s largest financial marketplace and as such shows minute by minute volatility. For those businesses that require to purchase foreign currencies in order to make payments overseas – this volatility has the potential to cause problems.
There is a constant concern within businesses that the exchange rate will drop below a particular budget level, which can leave a business ‘out of the money’ on their foreign currency payments. Even without dropping below the costed level, falling exchange rates can impact profit figures. No matter how conservative businesses are when deciding what exchange rate to work with when costing their goods, fluctuations in the market can cause headaches.
SO HOW SHOULD THE UK WIND ENERGY SECTOR MANAGE THIS PROBLEM?
As the sector grows and more and more turbines are constructed, currency risk becomes more prominent. Projects can be costed and agreed months before construction even begins. Many Finance Directors will wait until invoices are received to look at currency exchange, but that could well be too late. If the spot market has moved the wrong way then imported goods can become much more expensive by the time the currency is exchanged, hitting margins.
MANAGING EXPOSURE TO RISK There are many different methods that a business can use to manage their exposure to this risk. Strategies will be based entirely on the owners risk appetite and can encompass a number of different instruments and products. The percentage of exposure hedged and the levels at which to hedge it will be determined by the needs of the business in question and the ultimate goal of this kind of hedging is to ensure that the business is protected against negative movements in the market – while still able to capitalise on favorable movements.
54
www.windenergynetwork.co.uk
There is no doubt that falling exchange rates can cause businesses to encounter problems. On the flip side however, if they can secure themselves a favorable rate of exchange then many businesses find an opportunity to improve their bottom line or increase their competitiveness in the marketplace (through discounting or other offers).
Therefore, regardless of the size of the business, considered management of a foreign exchange requirement is essential in order to ensure the most bang for every buck.
Torrie Callander
Foreign Currency Specialist Global Reach Partners
www.globalreach-partners.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116