Managing risk: treasury policy is crucial when trading overseas

WHEN managing currency risk, there is a trade-off between what you are trying to achieve and how much flexibility you want – getting that balance right is tricky.

Businesses that are trading overseas must have policies in place to manage that risk, to avoid unexpected fall-out as a result of currency fluctuations.

That was a key point made by experts and business leaders at a round table discussion on the importance of managing risk in overseas markets, held at the offices of Lloyds Bank in Manchester.

Rebecca Parker, financial controller, Technical Textile Services, said: “With our supplier base we can switch easily from China to Europe but for us it is challenging because of the exchange rate. The dollar has been so volatile. If we get it wrong it could cause a massive loss to the business.

“It’s second guessing the market and none of us can do that. All we can do is cover the best we can and cover what we are going to do.”

Ed Massey, head of new coverage, Lloyds Bank gave the example of one North West company he has dealt with that exports to 50 countries and deals in dollars and euros but had no treasury policy at all.

“They were really underestimating what that meant for their business. We ran a series of distribution analyses on the underlying business which found and revealed the impact on the business,” he said.

“A very sophisticated business will do those and have a treasurer but the next tier down there is a growing need for business to understand the impact.”

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Andy Gossage, chief operating officer for Ultimate Products agreed that it is “crucial” to have a policy.

He said: “If you don’t then board meetings can turn into speculative discussions about the direction of the dollar.

“When do you take orders and when do you place them? Others may plan for seasons. It’s about the margin you have committed to that you want to tie in, or the budget rate. You need to have a policy to put in front of the board for them to sign off.”

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To read the full round table discussion, one of four features in our 18 page downloadable PDF supplement on Managing Risk in Overseas Markers, click here.