Should you track currency values as a business owner?

Should you track currency values as a business owner?

There’s no doubt that entrepreneurship represents a clear pathway to career and financial success in the modern age, despite the impact of the coronavirus on businesses and the wider socio-economic climate.

To this end, the UK suffered a record 9.9% slump through 2020, creating significant downward pressure on small and independent businesses in particular (many of whom have been required to lockdown for a significant period of time).

For those businesses that have survived and are continuing to thrive, it’s important to monitor the economy and pre-empt events that may impact adversely on your business. But what can be gained from tracking currency values as an entrepreneur?

 

1. Recognise that the Price of Imports May Rise

If your business manufactures products to sell into the marketplace, you may have to procure parts and components from overseas. This is indicative of the automotive trade, of course, while many other industries share a similar model and mode of operation.

This type of model relies on imports, but a decline in the value of the pound is likely to precipitate an increase in the cost of buying goods from overseas.

For example, if the price of the Euro rises against the GBP from €1.00 to €1.25, it will have increased by a quarter. This type of shift can occur in a relatively short trading period too, so it’s important to monitor relevant currencies if you’re to make informed decisions as an entrepreneur.

Make no mistake; this will have a direct impact on your margins, which is something that businesses can ill afford in the current climate.

 

2. The Price of Your Goods Could Fall

If the value of the pound does fall against a number of rival currencies, this effectively means that the amount of money you’re selling your goods for will be reduced.

In instances where you enter a long-term trade deal with another nation at a fixed rate, this could prove to be disastrous for your profit margins, especially if your domestic currency plunges sharply due to macroeconomic or geopolitical factors.

Of course, it can be argued that the falling price of the pound could facilitate cheaper and more competitively priced exports, which may increase the appeal of your goods overseas.

However, this means little if it diminishes your margins too significantly, especially if the cost of imports has also increased simultaneously.

 

3. See How Currencies are Moving in Relation to Global Events

As you track currency exchange rates, you’ll begin to understand just how prices shift in relation to global events, key data releases and macroeconomic triggers.

This can build knowledge and a keen sense of determinism over time, enabling you to potentially understand forex trading in greater detail and profit from frequent price shifts.

So, if you’ve ever asked the question what is forex trading and want to generate an additional stream of revenue for your firm, tracking currency prices may create a solid foundation on  which you can build going forward.

Just remember to scale your efforts gradually and organically over time, in line with increased knowledge of the marketplace and your preferred currencies.

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Susannah Griffin
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