Why you need to start embracing currencies
10 March 2022 · 3 min read
Learn the language of currencies and create value for your firm — now! In this article, we will explain why not ‘embracing currencies’ —that is, failure to add more currencies to your business operations— will likely hurt your profit margins and your competitive position, ultimately leading to less growth.
The language of currencies
If you sell your product in the Polish market, will you promote it in the French or Spanish language? Of course not. A similar logic applies to other parts of business. Embracing currencies —that is, adding more currencies to your business operations— is like speaking in the languages of your customers and suppliers. It makes business a lot easier.
Take the case of an online retailer. Multi-currency offerings allow it to create a seamless buying experience that builds trust and reduces cart abandonment while at the same time allowing it to cut out intermediaries and drive high-margin online sales.
In B2B setups, the case for embracing currencies is even more compelling. On the contracting side, buying in the currency of their suppliers allows firms to avoid paying inflated prices due to FX markups and widen the range of potential suppliers and access better deals.
Selling in the currency of your customers allows firms to capture pricing markups and undercut the competition. Strong FXRM tools can enhance your firm’s competitive position by allowing you to price with the forward rate in the event of favourable forward points and/or by taking advantage of favourable moves in FX markets to price more competitively without hurting budgeted profit margins.
Finally, there is a credit risk element regarding the benefits of embracing currencies. If you are selling in Emerging Markets like Brazil or Turkey but you are using only a strong currency like EUR or USD, you are in effect transferring the corresponding FX risk onto the shoulders of your customers.
In the event of a sharp devaluation of the local currency, your customer might feel inclined to wait for a better exchange before setting their bills. That’s not a position you want to be in. To avoid your client’s FX risk from turning into your own credit risk, you need to sell in the currency of your customers while taking care of the corresponding FX risk.
So what’s holding you back from taking advantage of the benefits of embracing currencies? There might be two answers to this question. On the one hand, FX risk management is still seen as a resource-intensive activity that requires members of the finance team to perform many manual tasks, and that includes lots of hidden costs in terms of bank fees.
On the other hand, there appears to be a lack of understanding of the ins and outs of FX risk management, particularly —among many other situations— when it comes to pricing with an FX rate or calculating the amount of exposure to currency risk.
Currency Management Automation solutions, working alongside your existing systems, allows you to take currency risk out of the equation so that you can fully take advantage of the benefits of embracing currencies. This is achieved thanks to an entire family of automated hedging programs and combinations of hedging programs — all with the help of a single software solution.
Embracing currencies is not only a finance-related topic. It’s a strategic imperative. It should be at the top in terms of businesses’ priorities as they seek to enhance the value of the firm by selling more in terms of their invested capital.
The time to act is now.