Top Tips for Effective Currency Budgeting in 2024

Effective currency management is essential for UK small business owners who trade internationally. Here are some practical tips to help you effectively budget for your currency needs in 2024.

1. Set realistic exchange rates

Setting realistic exchange rates is key to accurate budgeting. Many businesses make the mistake of using overly optimistic exchange rates, which leads to financial constraints. How to set a realistic rate:

Look at historical data: Consider the average fluctuation range of your currency pair. For example, the GBP/USD pair typically fluctuates about 6% from its average high to low per year.

Calculate a realistic rate: If the highest rate for GBP/USD this year was 1.29, subtract 6% to estimate a possible low rate. The resulting rate should be around 1.213. This will give you a more realistic budget level that takes into account typical fluctuations.

2. Use an Currency Exchange Specialist

Currency exchange specialists like Rutland FX can offer you cheaper rates compared to traditional banks, who often charge 3% or more plus transfer fees. Here’s why working with a specialist can save you money:

Lower exchange rate range: Specialists often offer better rates. For example, if you’re sending £50,000 from GBP to EUR, a bank might offer you an exchange rate of 1.1482 with a £25 fee, while a specialist might offer you an exchange rate of 1.1800 with no additional fees.

Example of cost savings:

• Bank: (£50,000 – £25) x 1.1482 = €57,354.75
• Specialist: £50,000 x 1.1800 = €59,000
• Savings: €59,000 – €57,354.75 = €1,645.25

3. Consider a forward contract

A forward contract allows you to lock in an exchange rate for a future date, allowing you to hedge your costs rather than trying to make extra profit on the exchange rate. This is particularly useful during times of political or economic uncertainty.

Example: If you expect the GBP/EUR rate to fluctuate due to an upcoming election and the current rate is 1.18, you can lock in this rate for 3 months. If the price falls to 1.1700, you will still benefit from the higher price. However, if the price rises to 1.1850, the price will remain at 1.18, indicating that this could have a negative impact.

The main advantage of futures contracts is that you can plan your finances with certainty, knowing exactly what your costs will be, regardless of market fluctuations. Futures contracts prioritize stability over potential gains from favorable price movements, so weigh the pros and cons before entering into a contract.

4. Stay up to date on important economic news

Staying up to date on important economic news can help you predict currency fluctuations and make more informed decisions. The most important factor everyone is paying attention to right now is inflation, which is currently the main driver of exchange rates.

The inflation rate has a big impact on the value of a currency. If inflation rises faster than expected in the UK, the Bank of England may raise interest rates to curb inflation, which could cause the pound to rise. Conversely, rising inflation without a corresponding increase in interest rates could cause the pound to weaken. Keeping up to date on inflation trends and relevant economic news will enable you to make better decisions about when to exchange currencies and set exchange rates.

How Rutland FX can help

Rutland FX has been helping small businesses with their currency needs for almost a decade. Depending on the volume of currency your company exchanges, Rutland FX may offer rates significantly cheaper than your bank. With a focus on personalized service and cost-efficiency, we provide tailored solutions to help small businesses process international payments efficiently.

By following these tips and considering services from Rutland FX, you can better manage your foreign exchange needs, reduce costs and minimize financial risk.