How Foreign Exchange is Affecting Start-Up Firms

by | Apr 3, 2017 | Financial Featured

We often associate the foreign exchange marketplace primarily with investments and trading platforms. However, it is also critical to realize that this sector can have a massive impact upon start-up businesses from around the world. In order to fully understand this somewhat symbiotic relationship, it is critical to examine a few key factors which can have an effect upon enterprise-level organizations. We will then be able to see how this market can be leveraged in order to benefit any growing firm.

Looking at the Big Picture

Before delving into specifics, it is wise to understand the main relationship between foreign exchange rates and businesses. There are two main takeaway points here:

  • The depreciation of a domestic currency will lessen the price of exports; benefiting such firms.
  • An appreciation of currency will benefit importers while exported products will become more expensive.

This principle should be rather obvious and still, a real-world example could help to further cement the point. Following the Brexit vote, the value of the pound slipped to a 31-year low and it has still not yet recovered. Many experts feel that this currency will remain in the doldrums for some time. Firms within the United Kingdom which ship goods to other portions of the world (such as the EU) will benefit from these rates, as their products are cheaper to purchase in relation to other currencies. This is one real-time example of how the foreign exchange markets can impact a business. However, will these same rules apply to start-up firms?

The Start-Up Question

During 2016, it was reported that more than 80 start-up businesses were created every hour. It is likely that 2017 will report similar numbers. So, are small businesses truly impacted by the foreign exchange marketplace? The simple answer to this question is yes, and for a number of reasons.

We need to take into account the raw materials that many enterprises will require on a daily basis. Examples here can include paper, computer products, shipping services, foodstuffs and indeed everything in between. The prices of the majority of these products are based off of international economic conditions. For instance, a bearish euro outlook will make it cheaper for a fruit company to import oranges from Spain. On the other hand, a bullish euro stance could cause the cost of packaging materials from Germany to rise; resulting in lower profit margins for a company within the United Kingdom.

The key point to remember here is that most start-up businesses need to reduce their overhead and in-house expenditures as much as possible. This is the primary reason why international exchange rates are so very important to monitor. Such a concept is even more relevant when referring to a growing enterprise that regularly imports or exports products in bulk. Even a small exchange rate move could equate to a great deal of money being gained or lost within a short period of time.

Staying In The Know

The best way for a start-up business to leverage the power of the foreign exchange marketplace is to keep informed of all of market insights as they become available. Listed below are some helpful resources that analyze and report on foreign exchange and economy related pieces that startups and new businesses, alike can browse:

Investopedia – Investment-related news and opinion website.

XE Blog – The giants of currency-related information, this blog is packed with market analysis, sometimes reported on twice daily.

CMC News and Analysis – Market related news and insights on foreign currency as well as precious commodities.

World First –  Economic updates, advice on selling online and a dedicated section on international business.

This Monzo blog post – An excellent blog post on how the wholesale foreign exchange market works.

In an increasingly interconnected world, such information is crucial to maintain the health of a growing business.



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