Rise and fall: 5 tips for managing FX risk

Rise and fall
Rise and fall

Thorsten Seeger, head of SME for financial markets at Lloyds Bank Commercial Banking, outlines what SMEs should consider when managing foreign exchange risk…

  1. Take advantage of new Technology – banks have invested millions in digital platforms to make it cheaper, simpler and more transparent for you to purchase currency. For example, at Lloyds Bank we have made significant investment in our digital offering, such as our FX booking platform Arena, as well as producing informative online webinars to keep you up to date with key market events and forecasts.
  2. Understand the impact of Mark-to-Market movements on your accounts and FX facilities; New accounting regulation may mean that booking FX forwards and other FX risk management products may lead to increased volatility in your P&L statements - speak to your Bank or accountants on this. Certain providers may even ask you to post additional cash (margin calls) to support FX facilities, which may be a drain on your working capital.
  3. Don’t be greedy – your expertise is in directly running your business, not trading on the FX markets. Adopt an approach that fits in with your available time, willingness and ability to bear FX risk.
  4. Ask for help – Your bank has likely dealt with many other clients facing similar FX issues and may be able to offer invaluable insight on sector hedging behaviours and common practice.
  5. Keep it simple – there is a wide array of FX risk management products available, with various features, risks, and benefits. It is easy to be enticed by headline rates, but it is equally important to carefully consider the risks.