I have a number of issues with this proposal. It highlights the option for businesses to use hedging products as a means to "manage risks in currency fluctuations".
Having acted for a number of clients in respect of hedging products, I know from experience that they are anything but "simple". The overall principle might be, but as always the devil is in the detail.
For businesses who are properly advised (or experienced in the use of hedging products), hedging can be an extremely useful tool to manage fluctuations. However, it is also worthwhile noting that many businesses have suffered significant financial loss as a result of not fully understanding the risks, implications and consequences of hedging products.
Many businesses have been sold, or persuaded to enter into hedging products which were wholly unsuitable for them.
I fully understand the need for certainty, in an extremely uncertain and volatile market. Whilst hedging can be an extremely useful tool if used correctly it is not always the answer!
I am also extremely sceptical of forward contracts (which are used to protect businesses from potential losses from currency fluctuations) that are taken out months in advance. Since currency fluctuates constantly it is virtually impossible to try and predict currency rates with any accuracy(particularly with the numerous national and international influences).
For any business considering entering into a currency hedging product, it is always advisable to take independent financial advice from a hedging specialist.
If you have a query regarding the legal position of a hedging product call Sophie Samani on 0121 214 1215 or email Sophie at firstname.lastname@example.org
Daniel Webber, of currency comparison site FXCompared, says: 'Brexit has shown us a consistently volatile pound. Simple currency hedging products, such as a forward contract, can be used to lock in a fixed exchange rate, removing the need to predict the future movement of the pound.'As such, currency hedging products should be used primarily by SMEs as a budget planning tool.'If your company knows they have future international financial transactions, a forward contract can be taken out days, weeks, or even months in advance, allowing your financial decision makers the ability to know exactly what exchange rate they will be paying.