Belfast Telegraph

Make the most of your money

Brian Telford, Northern Bank Head of Markets, discusses the effect of a strong pound on exporters

Reading about the tumult in the eurozone in recent weeks, it's sometimes easy to think that businesses in Northern Ireland are lucky to be insulated from it all.

Indeed, despite the double-dip, the UK has proved a relatively stable place to do business while firms in the eurozone have had a torrid time of it.

However, a crucial component of competitiveness for companies here is the exchange rate between the euro and sterling. A strong pound may be good for holidaymakers but it can hurt NI exporters by making their goods more expensive relative to those made by foreign manufacturers, meaning that buyers may take their business elsewhere. From a UK perspective - where the government has been hoping for an export-led recovery - this issue is coming at just the wrong time.

We've seen sterling touch a four-year high against the euro over the last month, with one pound climbing in value to be worth an average of €1.28. That's a big jump - particularly considering that over the past year the average has only been €1.19 - and it reflects the financial markets' ongoing concerns about the rescue plan for the eurozone.

Those shifts might look tiny on paper, but they can represent bad news for NI companies exporting to the Eurozone - especially those operating in high-volume, low margin businesses. The kind of change in exchange rate that we've seen could take as much as 8% off the bottom line - an unwelcome hit at a time when the market for many exports is becoming increasingly competitive.

Yet there are some steps our companies can take to help protect themselves against any fluctuations in the markets and hedge their exchange rate risk.

For example, contracts and letters of credit can be drawn up with provisions for a fixed exchange rate; meaning that no matter what the global markets do you can be sure of getting paid the same price for your goods. It may also be possible to arrange forward contract agreements with your bank, guaranteeing the rate at which you can convert your euro in the future. You should also make sure that when you are drawing up contracts with customers that you are using an up-to-date and achievable exchange rate.

A further reason for optimism comes from Threadneedle Street, where the Bank of England recently announced a £50bn expansion of its programme of 'quantitative easing' - swapping cash for long-term bonds. One of the effects of this may be to devalue sterling, evening up the playing field for exporters selling goods to the Eurozone and further afield.

Currently, the UK is also on a negative watch from several of the credit rating agencies - if it were to lose its coveted triple-AAA rating, we might expect to see a devaluation of the pound which, while not good news for some, could have a positive impact on exporters.

Ultimately, the most important thing for exporters is to seek advice on how to best manage the side effect of these factors that are outside their control. You should always seek professional advice on how to secure trade on favourable terms when exporting - particularly for the first time in new markets. Your bank can help in this regard, as can your accountant and lawyers.

The Northern Ireland Chamber of Commerce's Export First Programme - in partnership with Northern Bank, A&L Goodbody and ASM Chartered Accountants - is an excellent resource for key banking, legal and tax advice for aspiring exporters in NI.

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