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‘Reap the rewards of forward currency contracts’

Chris Canning

International trading features high on the list of most fashion retailers.

International trading features high on the list of most fashion retailers. Karen Millen, Reiss and Marks & Spencer have all recently announced plans to expand their portfolios overseas. And where these retailers make their mark, other designers and brands will follow.

However, a move into international regions – with the direct costs on setting up a new shop plus the investment in additional production – can add another, often overlooked, cost factor: the exchange rate. Getting it wrong, particularly for a small business, can make a difference between profit and loss.

Currency companies are able to provide forward contracts that can lock in rates of exchange, while also offering much better rates of exchange than a bank can provide. For example, take a UK-based company that buys $100,000 worth of stock.

At the start of May the rate of exchange was $1.62 to the pound and so this would have cost £61,730. At the end of May, the exchange rate was nearly $1.54 to the pound and therefore the same dollars would cost £64,940.

Forward contracts therefore allow companies to lock in exchange rates for up to 24 months, which can help with budgeting, pricing structures and securing bottom-line profit.

  • Chris Canning, Head market analyst at currency specialist First Rate FX

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