What is exchange rate risk?
Exchange rate risk, also called FX risk, refers to the exposure businesses face when transacting in currencies other than their base currency. Even small changes in exchange rates can impact:
- The cost of imported goods and services
- Revenue from overseas clients
- Budgeting and forecasting accuracy
Example | Importing goods from the US:
A UK agricultural firm buys machinery priced at $1,000. When the GBP/USD rate was 1.2099 on 13th January 2025, this cost them £826. By 21st January 2025, as sterling strengthened to 1.3469, the cost fell to £742 — a decrease of £84.
Example | Exporting goods to Europe:
A UK manufacturer sells a sofa for €5,000. On 28th February 2025, when the EUR/GBP exchange rate was 1.2133, this generated £4,121 in revenue. By 11th April 2025, as the euro weakened and the rate fell to 1.1444, returns increased to £4,369 — a gain of £248.
How can exchange rate risk be managed?
Managing FX risk is the practice of managing the financial impact associated with exchange rate fluctuations when operating internationally. It can help businesses reduce the impact of unpredictable currency markets on cash flow, pricing, and profit margins.
Rather than eliminating all risk, the aim is to provide more certainty and visibility over future currency exposure — especially when large sums or long-term contracts are involved.
The right approach will vary depending on your business model and objectives, and may involve the use of foreign exchange tools.
Examples of managing currency exposure
Businesses with overseas interests can better manage currency risk by planning ahead. Currency market movements are difficult to predict, so working with a specialist can help reduce uncertainty and support strategic decisions.
While market movements might occasionally work in your favour, they can also result in significant losses. That’s why many businesses explore methods to bring greater stability to their international payments and revenue planning.
Common tools used to mitigate FX risk
FX products and tools are designed to help businesses gain more control over their foreign currency transactions. These include:
1. Forward contracts
A forward contract* allows you to agree a fixed exchange rate for a future transfer when facilitating payment for goods, services or direct investment. It is useful as it:
- Helps lock in rates and stabilise future costs
- Provides more predictable budgeting
- May require a deposit or credit approval
Note: While you gain certainty, the market may move in your favour or against you after the contract is agreed. It’s important to weigh potential opportunity costs and risk.
Learn more about currency forward contracts
2. Market orders
Market orders let you set a target exchange rate and automatically make a transfer when that rate is reached.
- Useful when timing is flexible
- Can protect against drops with a minimum acceptable rate
- Offers an opportunity to capitalise on favourable movements
These tools offer flexibility for businesses to engage with the market in a way that aligns with their goals and risk appetite.
Support from a currency specialist
If your business sends or receives money internationally, working with a currency specialist can be a smart move. Services like the Telegraph Media Group Business Money Transfers, provided by Moneycorp, can offer:
- Competitive exchange rates
- Zero transfer fees for business clients
- 24/7 secure online platform access
- Personal account managers
- Free FX audit; and
- FX strategies that may align to your needs
Whether you’re paying overseas suppliers, managing payroll, or repatriating profits, a specialist can help you explore your options and implement a strategy that meets your FX needs.
- Open an account today to speak to a foreign exchange expert at Telegraph Media Group International Business Money Transfers.
Read more:
* Forward contracts may require a deposit.
All rates sourced from Bloomberg unless otherwise stated.
Information correct at date of publication.
Be aware of currency risk. None of the information contained in this article constitutes, nor should be construed as financial advice. TTT Moneycorp Limited (company number 738837) is registered in England. Its registered office is at Floor 5, Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ. Moneycorp is a trading name of TTT Moneycorp Limited which is authorised and regulated by the Financial Conduct Authority for the provision of payment services (firm reference number 308919). Date of approval 11/06/2025
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