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  March 8th, 2017 | Written by

North American Businesses Braced for Increased Currency Volatility in 2017

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  • Majority of North American businesses expect currency volatility to increase in the coming year.
  • Increasing geopolitical risk to yield currency volatility in 2017.
  • Currency volatility the biggest challenge to managing risk for one-third of North American businesses.

AFEX, one of the world’s largest non-bank providers of global payment and risk management solutions, today announced the results of its third annual Currency Risk Outlook Survey, which reveals that North American SMEs are concerned and alert to the currency risks brought on by increasing global political uncertainty.

The survey questioned more than 650 financial decision makers globally at SMEs engaged in international commerce about their attitudes towards global trade, foreign exchange risk and their methods of managing it.

Preparing to thrive despite global uncertainty
A majority (56 percent) of North American businesses surveyed expect currency volatility to increase in the coming year, while nearly one third (32 percent) cited currency volatility as the biggest challenge to managing currency risk.

Despite the expected increase in volatility, companies see themselves as well positioned to deal with this unpredictability, as 32 percent expect to increase international trade in 2017.

Asked which global events have most affected their company’s risk mitigation strategy over the last 12 months, North American clients cited U.S. monetary policy (36 percent), the 2016 U.S. presidential election (28 percent), the Brexit referendum (16 percent), and European monetary policy (16 percent) as the primary factors.

“Concerns over currency volatility dominate this report given the major political events that transpired in 2016, namely the Brexit referendum and the U.S. election, as well as uncertainty regarding US and UK monetary policy,” said Jan Vlietstra, Chief Executive Officer for AFEX. “However, the findings reveal that many businesses have tools in place and are taking an active approach to managing their currency risks, in order to not only stay afloat, but to continue the pursuit of international growth.”

Managing foreign exchange risk
Although an active approach to managing currency risk is enabling North American businesses to take advantage of opportunities around the globe in any economic climate, managing that risk is also at the core of protecting the business itself. Thirty-nine percent of respondents have at least half of their revenue exposed to foreign currencies, while 11 percent are fully exposed (100 percent).

Nearly all (95 percent) respondents in North America indicated that they intend to either maintain (66 percent) or increase (29 percent) their use of risk mitigation strategies in 2017.

Twenty-three percent are planning to make use of forward contracts, which allow firms to lock in a price for up to 12 months in advance to provide certainty and protect a business’s bottom line, while one in five (22 percent) intend to pass currency risks on to their suppliers and customers.

Unsurprisingly, the biggest challenges to mitigating currency risk cited by North American respondents were global economic policy uncertainty (51 percent) and currency volatility (50 percent).

The challenges highlight the advantage for businesses in utilizing flexible, effective tools to manage currency exposures, as well as having access to advisors with deep industry expertise, coupled with knowledge of their clients.

“As indicated by the survey results, businesses are expecting more volatility in the coming year, but they aren’t letting that deter their growth ambitions,” said AFEX’s Americas General Manager Christian Spaltenstein. ”AFEX is dedicated to supporting our clients holistically, encompassing payment efficiency, FX expertise and timely and sound advice.”