The role of foreign exchange for businesses in Ireland can be very significant.
The value of Irish exports to Britain in 2019 was €13.5 billion and the value of imports from the UK was €18.7 billion.
Many Irish businesses will have import/export payments to manage or overseas earnings to repatriate.If exchange rates go against them – it can reduce their profits significantly.
Check the latest Sterling to Euro Exchange Rate information
How Exchange Rates Can Affect Profits.
Here is a scenario showing the potential 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 would be worth €130,000 Euro on conversion.
- When the invoice was paid 5 days later, (after the Brexit referendum result) the £100,000 GBP was only worth €120,000. This was a reduction of 7% , almost halving their expected profit margin of 15%.
If that business had secured a specified exchange rate in advance of the payment date – they would have saved thousands.
It is possible to do this with the help of currency exchange specialists. They are able to set up something called a Forward Contract. More details on this later.
There are several other methods that businesses can use to reduce currency risk. By locking in favourable exchange rates a business can achieve predictable profits and not be at the mercy of the currency markets. (See the end of the article for some examples).
Listed Below Are Some Specialist Currency Exchange Brokers that Deal with Foreign Exchange for Irish Businesses
Currencies Direct has a London HQ and over 25 offices located in London, Ireland, Spain, France, Portugal, USA, South Africa and India. They have been operating since 1996 and transfer more than £7.5 billion annually.
Currencies Direct Ltd is authorised by the UK Financial Conduct Authority. In the EU they are authorised by the Bank of Spain to operate as an Electronic Money Institution.
The Currencies Direct team of currency experts is always on hand to talk through your options.
In 2023 Currencies Direct won the Business Moneyfacts ‘Best Business FX Provider’ award.
They also have a level 1 credit rating with Dun & Bradstreet
With Currencies Direct you can manage multiple currencies from one online account without the hassle of opening overseas bank accounts. You can collect payments in GBP, EUR, USD, CAD and JPY. You can make payments in over 40 currencies.
They are very good for online sellers receiving funds from global marketplaces like Amazon. With a more efficient process for converting revenue from marketplaces, you have greater control over the timing and cost of your payments.
With expertise in foreign exchange and aggregated market forecasting, Currencies Direct can help you make smart decisions and use the best solutions for your business.
You can find out more on the Currencies Direct Website.
Currency Solutions is a UK-based currency specialist firm that can help businesses identify and understand their foreign exchange risks. They can assist your business in identifying suitable hedging instruments and proposing a strategy with costs, benefits and risks.
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. EEA Payment services for Currency Solutions are provided by CurrencyCloud BV which is authorised by the De Nederlandsche Bank (DNB) to carry out the business of an electronic money institution
You can call them on their Irish number 01 431 1344 or on their UK number 0044 207 740 0000 .
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.
Fexco Corporate Payments
Fexco is an Irish firm, founded in County Kerry back in 1981. They employ over 2,300 people in 29 countries.
If your business needs to pay overseas suppliers or transfer funds to global partners, Fexco can handle this for you. Fexco supports over 130 currencies, with timely delivery of exotic currency payments like Indian Rupee and Mexican peso.
Fexco has several well-known Irish businesses as their clients – such as Zenith Technologies, NUIG, DCU, Concern and Bon Secours.
Fexco Corporate Payments is authorised as a payment services provider by the Central Bank of Ireland.
The UK Financial Conduct Authority authorises them to conduct a payment business in the UK.
At Fexco your business will get access to a dedicated account manager who will help you to identify and understand the foreign exchange risks and then develop hedging strategies to suit you.
Their online payment platform lets you connect your business with bank-beating exchange rates when paying overseas suppliers or repatriating overseas earnings. You can make payments using the online platform or call Fexco’s dedicated currency dealers.
You can find out more and register on the Fexco Website
Transfermate is a Dublin-based currency specialist firm that specialises in Foreign Exchange for Business. They are regulated by the Central Bank of Ireland and financially backed by AIB and ING.
By utilizing TransferMate’s global payments network of local bank accounts, businesses can reduce their exchange fees.
Transfermate deals with both small and large businesses. One example is University College Cork , which receives thousands of multi-currency payments every year from international students. By using TransferMate the University reduced its bank charges and got better exchange rates.
TransferMate offers a range of APIs that integrate with popular accountancy software such as SAP, Sage, QuickBooks and MYOB.
Find out more and set up a free online account via the Transfermate Website
Garton Global Payments
Garton Global Payments is based in London and was set up by Irish native Niall Walsh. They have plenty of experience in dealing with Foreign Exchange for Business customers in Ireland and the UK. Garton can create unique multi-currency named accounts for businesses so that they can receive funds and send payments internationally. If it’s a large one-off payment or regular payments, Garton Global will be able to assist your business in reducing the cost of currency transfers.
Garton Global Payments get exchange rates directly from the interbank market, but having a much lower cost base than the banks means they can offer better rates for you. (Especially on amounts over €10,000) .
All payments and transfers are carried out on the CurrencyCloud platform which is fully authorized and regulated in the UK, EU, US, and Canada .
You can request a quote online or call the Garton team direct on (UK) +44 20 8004 3288 or in Ireland on 01-5846855
Examples of Currency Hedging Tools
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 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 exchange rate on the day. If you don’t go ahead with the exchange as agreed there may also be a breakage fee.
(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). Here are examples of two possible outcomes on maturity:
a) On March 30th 2019 – the GBP spot rate is €0.87 , so they sell GBP at the lower prevailing rate (and get €114,942).
b) On March 30th – the spot rate is €0.94 which is higher than the option agreed of 0.90. So they can exercise their right to sell at 0.90 and get €111,111 instead of €106,382
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%.
Scenario 1 : 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)
Scenario 2 : If the sterling rate in 6 months time had dropped to €1.06 the customer only has to transact at the market rate of €1.06 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 €108,000)
Without any forward contract – the outcome would have been €106,000