When you work in import/export and deal with foreign exchange every day, you will know how important it is to mitigate your risks as much as possible. It’s not for nothing that foreign exchange is called a roller coaster. One day, you will be sitting pretty at the top and have a beautiful view of the world around you, and the next day, you will scream yourself awake at all hours of the night because the currency plummets much faster than you would have liked. Fortunately for you, hedging can help you to sleep better since it basically insures your import/export profits, since you minimise your risk against foreign exchange fluctuations by securing the currency exchange rate on the day of purchase for a future value date. This allows you to cost your products in today’s market at today’s rates for a future delivery.
If The Rand Strengthens, Won’t I Be Out Of Pocket?
I hear this argument too many times to count and want to set the record straight. The shortest answer is, no, you will not lose your profits with hedging if the Rand strengthens. You will only lose out on additional profits if this happens, but the profits that you calculated at the start are still in place. Hedging works because you are still costing the profits of your products at the rate on the day the conversion will take place. Just remember that, if the Rand went against you and you hadn’t hedged, then you’d definitely be out of pocket.
At Gapex, we do Foreign Exchange Contracts, Futures Contracts, and Options and Derivatives.
Bear in mind that not every solution may not be the right fit for your business, but you can always contact me, Grant, or Peter, to find out if hedging is the right fit for you. Wouldn’t it be better to be sure and be able to safeguard your import/export profits?