Risk & Economy » Regulation » Currency risk costs British SMEs £10bn a year

Currency risk costs British SMEs £10bn a year

SMEs must tread carefully to avoid falling into foreign exchange pitfalls

BRITISH SMEs have lost over £10bn in the last 12 months because of poor risk management around their currency exposure.

That’s the alarming claim from financial services company Ebury, which in a new white paper, ‘5 Major Foreign Exchange Risks’, outlines the reasons for such catastrophic losses, including the volatility of the foreign exchange market, particularly with emerging market currencies, the risks involved in international fund transfers and a lack of local market insight. The data comes from Ebury’s market analysis.

It says that while expanding overseas “is the perfect way to grow a business, especially an SME, international trade holds a number of risks, which can create extensive additional costs when they are not given due consideration”.

A lack of local market knowledge has had a “significant impact on British SMEs as many struggled to adapt to the risks presented by expansion into new territories” primarily fuelled by the recent lull in foreign exchange fluctuations which had “instilled a false sense of security meaning that large numbers of SMEs have failed to cover their risks, particularly where emerging market currencies are concerned”.

To help SMEs successfully pilot volatile and unfamiliar markets, Ebury’s white paper covers market volatility, exotic currency volatility, the transfer of money, gaining market insight and security.

“The past year represents a missed opportunity for SME leaders,” said Enrique Diaz, chief risk officer at Ebury. “We need to see more SMEs empowered with the correct skills and knowledge to navigate international markets.”

“Having the ability to deal, trade and pay a supplier in their home currency is extremely beneficial and companies can gain the competitive edge. Whilst banks may seem like an obvious choice, there is a reluctance to provide the level of service that SMEs require. That is where alternative service providers can prove more beneficial and it is certainly worthwhile for SMEs to review the available options.”

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