Owner Managed Business
Growing businesses in the UK must get the Euro firmly on their agenda following the Toyota decision to demand contracts in Euros from UK suppliers says Mark Hunt, head of KPMG's owner managed business team.
Toyota, Japan's biggest carmaker, wants contracts in euros with some UK suppliers in an attempt to reduce its exposure to further rises in the value of sterling.
According to Mark Hunt, the move could spark similar demands from other customers and put added pressure on businesses in the supply chain.
He said: "If they have not already done so, UK Ltd. should seriously consider how they will manage payments in the Euro.
"If businesses merely focus on converting the euros to sterling income flow could suffer should the euro depreciate against sterling. While the reverse could also happen, any response should be one that aims to minimize exposure to currency fluctuations and their impact on profitability.
"One of the most effective ways of reducing risk is natural hedging – matching expenditure in euros with income in euros. This way if the euro depreciates against sterling, any adverse financial impact on euro income is offset by a corresponding benefit to euro costs. This can be achieved by looking at areas where purchases can be made in euros."
Mark Hunt said: "Where income is in euros but it cannot be spent in euros there are two courses of action. The business can either to do nothing and hope the exchange rate does not change significantly before the payment is received, or it can hedge through a forward foreign exchange deal."
A forward foreign exchange contract is where an agreement is made with the bank to sell a specified amount of euros for an agreed amount of sterling, to be delivered at a set date in the future.
Mark Hunt concluded: "There are significant opportunities for businesses to exploit the commercial benefits of trading in the euro but they must understand the issues it raises and be fully prepared for the impact on their business."
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