Currency Exchange for Business

The role of currency 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 harm their profits.

Check the latest Sterling to Euro Exchange Rate information


How Exchange Rates Can Affect Profits.

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 would be worth €130,000 Euro on conversion.
  • When the invoice was 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%.

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).



We have listed some specialist currency exchange brokers below that will be able to advise you on the available options.

Currency Exchange Specialists for Business


Transfermate

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

Transfermate deals with both small and large businesses. One example is University College Cork who receives thousands of multi-currency payments 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


Fexco

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 has several well-known Irish businesses as their clients – such as 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.

fexco

At Fexco you will get access to a dedicated account manager who will get to know your business, help you to identify and understand the foreign exchange risks and then develop hedging strategies to suit you.
Their online payment platform will allow you to connect your business with bank-beating FX rates when paying overseas suppliers or repatriating overseas earnings. You can make payments from the online platform or call Fexco’s dedicated currency dealers.

You can find out more and register on the Fexco Website


OFX

With OFX your business can transfer money to over 190 countries in 55 different currencies with secure transactions, low margins and zero foreign exchange fees.
OFX offers 24/7 support from their 200 staff in eight offices across the world, including Dublin.
Founded in 1998 in Australia. OFX is now publically listed on the Australian Stock Exchange (ASX).

OFX can provide personal, helpful service when you need it and an online platform when you don’t.
Whether you need help setting a target date or want to know more about an exchange rate, an assigned dealer will be there to help you.

The “Global Currency Account” is an optional extra from OFX . This allows your business send and accept multi-currency payments and avoid unnecessary bank conversion fees.



OFX is authorized by the Central Bank of Ireland to operate as an e-money institution in Ireland and the rest of the EU. They are also authorised in the UK ,USA, Canada, Singapore, New Zealand, Hong Kong and Australia.


Register with OFX Here





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 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.


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). 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


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%.

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


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