Currency Exchange for Irish Businesses.

The total value of Irish goods sold to the UK in 2017 was €14 billion (or 11.5 per cent of total exports). The UK remains Ireland’s single largest trading partner for the agrifood sector which exported €5.2 billion worth of goods to Britain last year.

The majority of Irish firms with a direct trading relationship to the UK are SMEs – and they are the ones who could be hardest hit by any Brexit related currency issues.
A 2019 Bank review here in Ireland highlighted that any further weakening of Sterling will make Irish exports to the UK more expensive. In the event of a hard Brexit- a weaker pound could coincide with an increase in tariffs on those exports.

Weaker Sterling and a stronger Euro could also bring about increased competition from UK suppliers and online retailers.
Check the latest Sterling Euro Rate here

How Can Irish Businesses Protect Themselves against falls in Sterling?

Here is an example of the effect of exchange rates on profits using actual exchange rates on the dates concerned :

  • An Irish business agreed to sell goods for a price of £100,000 GBP to a UK retailer on 22nd June 2016 .
  •  The Irish business calculated that the payment will be worth €130,000 Euro on conversion.
  • When the invoice is paid 5 days later, (after the Brexit referendum result) the £100,00 GBP was only worth €120,000. This was a reduction of 7%  , almost halving their expected profit margin of 15%.

There are a few ways that Irish firms can manage currency risk by using hedging tools that are offered by some specialist currency exchange brokers listed below.
(See the end of the article for worked examples)

Transfermate  is a Dublin based currency specialist firm that specialises in dealing with business clients. If your business sends or receives international payments TransferMate allows you to protect your business against currency market volatility by locking in a rate for a fixed term with no drawdown fees.
It is easy to set up an online account via their website or you can phone them for the personal touch on  Dublin  01 6353776. ( Transfermate is regulated by the Central Bank of Ireland).

Fexco is an Irish firm that can exchange your money and transfer the funds to banks overseas. Fexco was established in 1981 in County Kerry and now employs over 2,300 people in 29 countries. They are authorised as a payment services provider by the Central Bank of Ireland and are also regulated by the Financial Conduct Authority for the conduct of payment business in the UK.  Fexco can provide advice to reduce your exposure to fluctuating exchange rates.  You can get a quick quote online at the Fexco Websitefexco

Currency Solutions is a UK based currency specialist firm that can help businesses identify and understand their FX risks.  They will assist businesses in identifying suitable hedging instruments and proposing a strategy with costs, benefits and risk. They can offer a range of FX solutions including Vanilla, Participating Forward and Collar .

currency solutions
Business customers get a dedicated account manager and instant access to the market via phone or online.
Currency Solutions are authorised by the UK Financial Conduct Authority.  The best way to get in touch with Currency Solutions  is to call them on their  Irish number  01 431 1344 or on their UK number 0044 207 740 0000 .
If you ask for the Money Guide Ireland  contact  – Ernie Enver. He should be able to give you a quick response to any queries.

You can also visit the Currency Solutions website here for a free no-obligation quote and they will call you back. Once registered, you can use their online platform for transfers of up to  £50,000 (for business customers ).

If you are a smaller sole trader type of business that just wants to carry out fast currency transfers with low fees and you are not too concerned about hedging tools  – you could use Currency Fair.
currency fair

For example – you might get paid by a customer in Sterling but need to convert it to Euros. (You will need a Sterling bank account.)  If you were to ask your UK bank do the transfer to your Euro bank account in Ireland – then you will not get a good exchange rate. By using Currency Fair you will get a better exchange rate and will typically save as much as €300 on a transfer of £10,000.

All transactions can be carried out online.  Currency Fair are based in Dublin and regulated by the Central Bank of Ireland.

Examples of Currency Hedging Tools

Forward contract: a forward contract is one of the most widely used foreign exchange hedging instruments. It is an agreement that a business will buy a specific amount of foreign currency at a pre-determined rate by a certain date.
These forward contracts enable an importer buyer to lock in the price to be paid, or an exporter to ensure the price to be received. There is no upfront cost for a forward contract – but you could end up getting an exchange rate that is less favourable than the spot rate on the day. If you don’t go ahead with the exchange as agreed there may also be a breakage fee.

Currency options: (Sometimes called a Vanilla Option) – This is the equivalent of an insurance policy. In return for paying an up-front premium, the holder of the currency option gets the right (but not the obligation) to buy or sell a currency at a pre-determined price on a given date.  But if exchange rates go in your favour – you can just take the exchange rate offered on the day (spot rate)  if it works out better for you.

  • Example of a Vanilla Option:- In December 2018 an Irish business wants the right but without the obligation to sell GBP £100k at €0.90 on the 30th of March 2019 .  (Getting  €111.111 in return). There are two possible outcomes on maturity:
    •  On March 30th 2019 – the GBP  spot rate is  €0.87 , so you sell your GBP at the lower prevailing rate (and get €114,942).
    •  The spot rate is €0.94 which is higher than 0.90, so you exercise your right to sell at 0.90 and get €111,111 instead of €106,382
A typical fee for this arrangement might be £1000 (1%)

Collar : (also known as a Cylinder)
A Collar FX provides you with an upper and lower limit for a specific amount of time at zero cost. You will be guaranteed the rate will not drop lower than the “Protection Rate” whilst allowing you to fully participate in favourable exchange rate movements as far as a predetermined Cap Rate.
If at expiry the exchange rate on the day (Spot Rate)  is more favourable than the Cap Rate, you will be obliged to transact at the Cap Rate.
If the Spot Rate is between the Protection Rate and the Cap Rate you can take the spot rate.
If the Spot Rate is less favourable to you than the Protection Rate, then you have the right to exchange your currency at the Protection Rate.

Participating Forward
This type of deal provides a zero-cost strategy and provides full protection against the depreciation of the spot rate while allowing the customer to partially benefit from an unlimited appreciation of the underlying spot rate.

Upon expiry, if the spot market is more favourable than the Protection Rate, you have the obligation to transact a predetermined percentage of the notional amount at the Protection Rate, whilst the remaining proportion can be exchanged at the favourable spot rate.

Participating Forward Example :

An exporter in Ireland will be receiving £100,000 GBP in 6 months time and will need to buy EUR with it to pay wages etc. The current spot exchange rate is 1.11 .
The business believes that GBP may weaken so enters into a “Participating Forward” at €1.10 with a participation rate of 50%.

If,  in six months time, GBP has strengthened and the spot rate is €1.13, the customer will have to convert the £100,000 GBP at the pre-agreed rate of  rate of €1.10.   (Grand total of  €110,000)
If the sterling rate in 6 months time has dropped to  €1.08 the customer only has to transact at the market rate of €1.08 on 50%  of the total (GBP 50,000) but can sell the remaining 50% (GBP  50,000) at the agreed €1.10.  (Giving a grand total of €109,000)

Without any forward contract – the outcome would have been  €108,000

brexit exchange rates

Business Bank Accounts in Ireland Compared