The Australian Dollar had a volatile year in which it has dropped drastically against the US Dollar, losing 10.89% of its value. Although this decline in value has been beneficial for service exports, such as tourism and education (which grew in 8.5 per cent in 2015), importers which are trading with U.S have seen a significant negative impact as a result of these changes.
On the other hand and somewhat unexpectedly, the 2015 the AUD has gained 6.13% against the Canadian Dollar. This rate for the pair has been corrected in Q1 2016, and the AUDCAD is close to where it was in January 1 2015.
These rapid movements can make or break Australian SME’s which are trading internationally. For some large, publicly traded, Australian corporates the AUD foreign exchange rates was one of the major obstacles they have faced in 2015, while for others these currency fluctuations offered countless opportunities, as reported on ABC news. This essentially applies for small businesses as well.
What are small businesses doing wrong in relation to foreign exchange
The first and most crucial mistakes small businesses can do in relation to their forex management, is to ignore it. They lack employees who have satisfactory financial expertise, and thus, mistakenly assume that “it’s too complicated”, or that no bank would handle their relatively low FX trading volumes.
The second mistakes many business owners do is to take a punt at currency trends, and falsely believe they are going to increase their operational profit by guesstimating future currency rates. The forex exchange markets are one of the most erratic markets for investors; unpredictable events have a direct impact on the currency rates, and there is a vast number of economic and financial factors that determine the pricing at any given moment. Even if a certain business owner considers himself a retail forex trading guru - he should be taking gambles with his own personal money, rather than risking the company’s funds and stability.
The third common mistakes the Australian and non-Australian businesses do is pay unproportional foreign exchange fees to their banks. International businesses trade larger volumes than private clients, and send and receive payments much more often, so fees can become a significant issue with a tremendous impact on the P&L.
What are small businesses doing wrong in relation to foreign exchange
The first thing to do is acknowledge the fact FX is a substantial topic that has to be dealt with if you have an internationally-trading business. Simply ignoring the problem won’t make it disappear, and even if your business has gained as a result of currency movements in the past, it doesn’t mean the trending will persist.
The second thing to understand is that there are specialised currency brokerages, which offer you a free help with foreign exchange management, and bespoke solutions based on your requirements. The people who will be assisting you are qualified employees with corporate FX dealer certification. In addition, these corporate dealers will give your business a direct access to an array of hedging tools in the form of FX options (such as Forward Contracts).
These commercial foreign exchange dealerships also take care of the excessive money fees issue which are so common.
Right off the bat, they would help your business slash 50% of your FX costs in comparison to banks, and if your trading volumes are sufficient, and your negotiations skills are sharp, you could save up even more. The way they operate is by providing wholesale rates on currencies, and charging lower wire fees than banks.
SendMoneyAustralia.com has listed some of the most popular corporate FX providers for Australian businesses. Good luck in your journey towards a responsible business FX management and ample saving.
