The foreign exchange rate can have a profound effect on one’s business, so it pays to keep an eye on this market especially with reference to the Pounds to Euros rate.
For example, if you sell products that are made abroad, you will most likely pay for those products in the native currency. So, if you buy leather jackets from Italy, you will probably pay for those jackets in Euros. Assuming you will sell those same jackets in the United Kingdom, you will be selling them in Pounds Sterling. If the Pounds to Euros exchange rate stayed the same all the time, there would be no problem.
However, the foreign exchange market is quite volatile. There are a great many factors that can change the rates between any two currencies and sometimes these changes can be extreme and happen very quickly. So, going back to the leather jacket example, if the value of the Euro were suddenly to jump against the Pound, those same Italian leather jackets would now cost you more as you get less Euros when you exchange your Pounds.
The problem is that you still sell the leather jackets in Pounds. So you either have to mark up your prices to compensate for the change in the currency rates, or you maintain your prices and absorb the loss. If you raise prices, you may suffer from loss of business if your customers think the item is too expensive.
Foreign exchange and tourism
If you are involved in, or planning to get involved in the tourism industry, exchange rates are also very important. For example, if a business is catering to European tourists from countries where the Euro is the official currency, you actually benefit from a lower Pound value. That is, when the Pound’s value moves lower in comparison to the Euro, your potential customers have greater buying power when travelling to the UK. Historically, tourists tend to come to the UK when prices look more attractive.
The fact that the Pound is lower has no negative impact on the UK businesses as long as they accept their payments in Pounds. Otherwise they may have to change their rates that are given in Euros in order to adapt to the drop in the Pound vs. the Euro.
Monitoring the currency market
By understanding and watching the foreign exchange market, you not only keep abreast of important factors that can impact your business in the present, but you can also plan more effectively for the future.
Whilst the currency markets tend to be volatile, there can also be long term trends. For example, during the recession that started in 2008, the U.S. Dollar has suffered a long-term downward trend. By understanding and successfully predicting such trends, you can make adjustments to your future business planning.
However, understanding the currency markets is not that simple. Either you will need to do a lot of research, which should probably include formal training, or you can hire a foreign exchange broker or firm with the necessary expertise. Which option to choose will depend on individual circumstances that affect your return on investment.