Most investors will be familiar with the concept of currency exposure, with constantly changing exchange rates affecting the cost of investing in international stocks. These same issues also affect companies that operate, import and export internationally.
If you have a business which prides itself on sourcing local products, foreign exchange is unlikely to have much of an impact on your profit margins. But if your business sources goods and services from overseas or exports products, fluctuations in the currency market can make a notable difference to your profitability.
A double-edged sword, the foreign currency market is one of the most volatile trading platforms in the world. Exchange rates can move by as much as 10% in a matter of days; on the day the EU Referendum result was announced, the Pound dropped 12% against the US Dollar.
When even small fluctuations in an exchange rate can mean you get less of a return on your finished products, businesses with regular international money transfers to manage could find themselves seriously out of pocket if they fail to capitalise on positive foreign exchange rate fluctuations, or leave themselves exposed to negative ones.
If your business sends or receives international payments, currency moves can potentially have a serious impact on your bottom line. But there are ways you can look to protect your business from adverse moves…
The first step is to understand your exposure and the potential risks to your business.
Next time the exchange rate swings by 10%, you want to be able to quickly and easily quantify its impact on your bottom line. The best way for importers and exporters to compete is often through being competitive on price, but when things outside your control significantly undercut your margins, you need to be able to quickly establish by how much and where.
It's essential that you can easily drill down into what products, orders and/or contracts are
affected across your business so you can start making the necessary price changes. You need to know if there are items in transit that are affected that you need to address straight away or are you looking at only new orders?
With a single integrated system like Microsoft Dynamics NAV, you can analyse the impact of these tricky external factors on your business – on margins, cash flow or productivity – and make the right, corrective decisions based on reliable information.
With Dynamics NAV you can easily change your currency rates as they change, keep track of your potential exposure to currency fluctuations and also accurately record realised gains and losses.
You can register exchange rates for each foreign currency and specify from which dates the exchange rates are valid. For example, you can enter daily exchange rates, monthly exchange rates, or quarterly exchange rates for each foreign currency. You can even retain historical exchange rates for reference purposes.
Isolate, evaluate, and eliminate the impact of currency fluctuations on your business operations – and keep your margins stable with Dynamics NAV.