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Directors of companies that import or export should consider hedging their bets against exchange rate fluctuations.
In a climate where even a small variation can have a direct impact on a deal's profit margins and shareholder dividends, there are a number of options that can be adopted to mitigate the effect exchange rate fluctuations can have.
Commercial banks normally offer a range of 'currency hedging' services, many of which can be tailored to suit your individual needs.
Forward foreign exchange contracts, for example, are legally binding agreements between a bank and its customer, whereby it is agreed that at some time in the future, one currency will be exchanged for another at the rate of exchange specified at the date of entering into the contract, regardless of any subsequent changes.
This means that you will be able to accept payment in a foreign currency and know exactly what the Maltese Liri equivalent will be. However, while this protects against negative rate fluctuations it does not allow you to benefit should exchange rates move in your favour.
Another option would be to open a currency account -- this can be in practically any currency including the Euro. You will want to ensure that the account is easily accessible and that it pays reasonable rates of interest on deposits.
Payments made into the account can be held until the exchange rate becomes more advantageous. You might also wish to use the account to pay for any imported materials or overseas business trips, always subject to Exchange Control regulations
This option can be a very useful way of holding funds before transferring them to a Maltese Liri account, however, timing does become a critical factor. For example, if the Maltese Lira strengthens further against the chosen currency, the business could lose out if it needs immediate access to those funds.
Grant Thornton can advise you on exchange rate management. We will review your circumstances and help you to select the best option for you and your business.
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