What is a Currency Risk Audit?

A currency risk audit is a tool we use to understand your business and your currency requirements. This allows us to then work with you to create and implement a currency risk strategy that is not only relevant, but tailored to meet your unique needs.

We take the time to understand your business and understand how and when you need to buy or sell in other currencies. There are 4 core factors we consider when audit any potential risks.

The 4 Factors that Define Your Risk

There are 4 factors that define your currency risk- your “exposure” to any fluctuation in the market. Understanding these elements is crucial to understanding your currency risk and thus creating an effective strategy.

  1. Timing – When do you need to exchange one currency for another? If you have a limited timeframe for exchange currencies, it can limit your choices to avoid currency risk.
  2. The amount – How much are you exchanging? The more you need to exchange, the greater the potential risk and the greater the need to be correctly protected (hedged).
  3. Margin – What’s your profit margin? The smaller your margin, the higher the need to monitor and manage your currency risk to prevent losses.
  4. Forecasting – How accurately can you forecast? The accuracy of your forecasting will influence your currency risk strategy.

What Moves the Price of a Currency?

The activity of buyers and sellers in the marketplace – or “liquidity” – drives the market and dictates the buy/sell price for any given currency

The buyers and sellers in the marketplace are driven by a requirement to trade (they need the money now) or to speculatively trade in the hopes of making a profit. Speculative trading is in turn driven by the political climate, the economic climate and unforeseen circumstances.

How to Get the "Best Rate"?

The best rate is not necessarily a fixed number – any given provider can supply a competitive rate. The “best rate” is about finding what’s right for your business.

It will be a culmination of understanding the needs of your business and understanding what moves the markets, and if there are any ongoing or upcoming political/economic events that may cause volatility in the market.

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