Foreign exchange health-check

22nd September 2011

Marianne Gilmore, Business Development Manager, Moneycorp, informs us of how to provide an instant boost to your clients’ bottom line - as well as your own - using a typical case study…

A Moneycorp ‘referring partner’ commercial mortgage broker was in talks with a client about a remortgage on a commercial warehouse and managed to identify how they handle their foreign exchange exposure.

The client imported catering disposables from China, paying in US dollars, for distribution to UK retailers. Typically, payments ranged from £30k-£50k and would be conducted at the end of each month via telephone with the client’s relationship bank. An exchange rate was agreed, the payment was sent and a charge of £25 was applied every time.

1.   Moneycorp looked at the client’s transactions for the previous six months to assess the margins taken by the bank. We identified that there was the potential for an average saving of 2% per transaction – equating to £9,000+ on an annual basis.

2.   We also looked at the client’s budgeted levels and the payment processes applied. With their existing provider the client re-costed every three months at a rate slightly below the current market rate.

·         At the start of November 2010, the client costed at 1.58; the market rate was 1.63 allowing for a 3% fluctuation in the rate. The client also felt the GBPUSD rate would improve based on latest news.

·         The GBPUSD rate actually started to fall. Subsequently their goods became more expensive.

·         A payment at the end of November was made at an exchange rate of 1.51.

·         A payment at the end of December was made at 1.49.

·         A payment at the end of January was made at 1.53.

As a result, the client lost over £5,000 over the three months based on their budgeted level.  

Outcome:

Moneycorp provided the client with a 0% forward credit line of £500,000 over 12 months.

·         We helped the client choose an appropriate budgeted level.

·         The client fixed an exchange rate for 50% of their USD requirements for the next 12 months above the budgeted level.

·         The client continues to buy at the spot rate when rates are favourable to them.

·         The client uses part of their forward contract when rates are against them.

·         The client is now less exposed to foreign exchange risk and has protected their forecasted profits. Their Moneycorp dealer keeps them up to date on the USD rates, alerting them if movements are in their favour so they can take advantage.

The referring partner receives a percentage of the profits generated on every foreign exchange transaction made by this client. There is also a genuine reason for increased dialogue between the two parties, despite the mortgage deal being completed.  

Moneycorp is the UK’s leading provider of foreign exchange and international payment services. They offer more than just competitive prices, working closely with corporate clients to create precise, tailored programmes that fit their FX trading patterns and specific business objectives.

To find out more about partnering with Moneycorp, please contact us directly on +44 (0)33 0010 7401. Alternatively, you can email corporatebdm@moneycorp.com