The “Grexit” (Greek exit) has been a near constant talking point for the Markets in the UK since the beginning of the year. The euro has strengthened over the last five months by an average of 0.7% against the other most actively-traded currencies. In recent weeks the euro has edged higher on average. Compared with pre-referendum levels, it is down by just two thirds of a cent against sterling and the US dollar. Investors are clearly not fearful that Greece will leave the euro or, if it does, that its departure will have any long-term damaging effect. Even a week after the supposedly final deadline, they are optimistic that Alexis Tsipras and the new finance minister, Euclid Tsakalotos, will reach an agreement in Brussels this week.
In the meantime the banks in Greece will remain closed for a second week. A shortage of banknotes now apparently means there is a de facto cap of €50 on ATM withdrawals. If the money runs out before the weekend, Sunday's European Council meeting might become redundant.
Should the “Grexit” occur, there’s a strong chance we’d see a flight of capital, as people not only pull their money out of Greece, but out of the Eurozone, which would cause the euro to devalue.
So what could this mean for business trading in the Eurozone? While a weakened Euro can be considered good news for those importing wares from the Eurozone, the foreign exchange market is prone to volatility. The euro fluctuated against sterling by over 12% in the first half of the year; changes of this size could seriously impact your profit margins. For example, a stock order worth €500,000 at the high of 1.42996 seen on June 29 2015 would have cost around £349,660, but the same stock order at the year’s low would have cost your business nearer to £392,150 a loss of almost £50,000, certainly enough to dent your business’ profit margins.
And for those selling their products in the Eurozone it’s especially important to protect your bottom line, as the comparative strength of the pound makes British wares increasingly more expensive for buyers in the Eurozone. Seeking expert guidance from a currency specialist can help mitigate the risks posed by your FX exposure.
The Financial Management Centre has partnered with payment solution provider, moneycorp, to help your business manage this risk. If you’re trading in the Eurozone, you could guard against further weakening by using a ‘forward contract’ to lock in the current exchange rate for up to two years. Those importing from the Eurozone might decide to take advantage of a ‘market order’ to target specific rates and capitalise on the weakening euro. However you choose to protect your profit margin your personal account manager at moneycorp will be able to tailor a bespoke package to suit your business’ needs.
If you need to make an international payment or deal regularly in foreign currency why not ask your contact at The Financial Management Centre for some help. As a result of the partnership between The Financial Management Centre and moneycorp we can help you save money with international payments and travel money needs. It’s completely free to open an account and there is no obligation to trade. Alternatively for more information or to contact Moneycorp direct visit https://www.tfmcentre.co.uk/moneycorp