Volatile pound brings foreign-trade headache for small firms

 
Chris Papadopoullos
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EXCHANGE-rate risk is presenting a major challenge to the UK’s smaller businesses, according to survey data released today by AFEX, a provider of foreign-currency management solutions.

When trading internationally, 43 per cent of small and medium-sized firms (SMEs) said currency risk was their biggest challenge, up from 32 per cent last year.

Currency risk arises when costs are in a different currency from revenue, which results in profit being impacted by movements in exchange rates.

Over the last 12 months the pound has reached seven-year highs against the euro and five-year lows against the dollar. Some companies have benefitted, with six per cent saying it led to an increase in business. However, eight per cent attributed the closure of an office or a cut in staff levels to currency volatility.

Only a third of SMEs currently use hedging tools, such as a fixing an exchange rate with a supplier, to mitigate exchange-rate risk, AFEX said.