The Euro to Sterling exchange rate is pretty important for many businesses and ordinary people in Ireland. The UK is one of Ireland’s biggest trading partners – so the exchange rate between Euro and the British Pound can have a big effect on retail prices and business profits. It can also have a big effect on travel and tourism between Ireland and the UK.
When the Euro is strong , imports from the UK are cheaper in Ireland – but most shops probably don’t pass on these reductions at the time. Shops like Next , Topshop, Marks and Spencers etc – won’t be adjusting prices every time there is a fall or rise in the Euro to sterling exchange rate – even though some customers seem to think they should. When they produce or buy in the products for sale in Ireland – the price is set at the time based on several factors , the currency exchange rate being just one of them.
Getting the Best Currency Exchange Rates
If your business involves buying or selling goods in a currency other than the Euro – then you must already know that exchange rates can have a big effect on your business profits.
For example – an Irish business agrees to buy £100,000 Sterling worth of stock from a UK company today , but doesn’t need to pay for it until 3 months later.
Over that 3 months – if the the Euro /Sterling exchange rate rises from 1.20 to 1.25 – then the business will end up paying €5000 more than they would have paid 3 months earlier.
Of course , it could also go the other way and the Irish business would end up paying less.
One way to avoid this exchange rate fluctuation and the potential reduction in income and profits is to use a Currency Broker . Such as Currency Solutions or Transfermate
Firstly – using a currency broker will nearly always get you a better deal on currency exchange than using your bank . If you receive a Sterling electronic payment into your Euro bank account – your bank will probably accept it but the exchange rate they apply will not be as good as the rate you would get from a currency broker. On small amounts the difference might not amount to much – but on values of €3000 or more the difference will be noticeable.
Using a broker can also give your business an easy method of managing future currency exchange risk and negating any unfavourable movements in exchange rates.
They give businesses (and personal clients too) – the ability to fix an exchange rate now for delivery of currency in the future. This means that you know exactly what you will have to pay on a future date.
Even if you are not sure of the exact date that you will need the funds, you can draw down on the funds within an agreed period of time.
A business based in Ireland agrees the purchase price of goods on April 1st with a UK Supplier at £100,00 Sterling. Payable June 1st.
If the exchange rate on April 1st was €1.20 Euro for £1.00 Sterling – the expected cost is €120,000 Euro.
If the business wants to lock in an exchange rate to avoid any drastic negative changes to their forecast spending – they can agree a “Forward Contract” with a currency broker.
For a small deposit (maybe 10%) the business can fix the exchange rate at €1.20 for as long as 12 months.
So – if by June the actual Euro Sterling exchange rate has changed to €1.28 – the £100,000 invoice would end up costing the business €128,000 , an extra €8000 more than was forecast back in April.
But – if instead they do the exchange through the currency broker at the previously agreed “forward” rate of €1.20 – it only costs them €120,000 . The original deposit of €12,000 is used and the balance of €108,000 is paid to the broker from the business’s Euro bank account and the amount of £100,000 GBP is transferred to the suppliers UK bank account.
Of course – if the Euro/GBP exchange rate had gone the other way , the business would have ended up paying less than €120,000 if they simply paid up and did the currency exchange when the invoice arrived.
But the advantage of it is the certainty of knowing in advance exactly how much something will cost the business. Using a forward contract helps manage the exposure to any unfavourable currency movements and protect those hard earned profits.
Currency Solutions is a UK based currency broker that specalise in regular or one off currency conversions for businesses. Call them on their Irish number 01 431 1344 or on their UK number 0044 207 740 0000– ask for the Irish Links contact – Ernie Enver.
Transfermate is another recommended currency broker, they are based in Ireland and are regulated by the Central Bank of Ireland. They are also registered with UK HM Customs & Excise . You can set up an online account and arrange currency transfers via their website or phone them in Dublin on 01 6353776