How a Weak National Currency Affects Businesses

by Startacus Admin
Currency value plays a significant role in pretty much everyone’s lives, but few places does it have as much importance as within the world of business. Here the strength or weakness of a national currency can often be reflected in a business’ performance.
The recent decision by British voters to leave the EU after its national referendum has led to the pound sterling to drop in value and become incredibly unstable. This has created a lot of uncertainty for businesses in and working with the UK. A weakened currency can affect businesses in various ways.
Importing Goods
A lot of businesses rely on importing goods from abroad to create the products they go on to sell for a profit. A weaker national currency results in these imports being more expensive, meaning the company’s profit margins will grow tighter unless a cheaper alternative can be found.
Spending more money on imports will then require your business to sell more of its goods to match its pre-currency devaluation levels. Paying foreign suppliers in their own currency will lead to lost money, as it will go through the cost of converting, but if your company can pay in its own national currency then less will be lost.
Exporting to Clients
As well as importing goods, due to the increased global connectivity of businesses, many will rely on international clients. Exporting goods abroad when the national currency has dropped in value can actually have somewhat of a positive effect.
If the country where you are exporting to has a strong currency, it may work out cheaper at their end, as converting to your national currency will cost less. This can encourage sales and make up for anything lost through the reduced national currency value.
Interest Payments
When dealing with clients paying from abroad and in different currencies, the interest can be paid in the foreign currency. When the national currency has depreciated this can be a positive thing, the stronger foreign currency converting to more, benefitting your business.
However, when paying interest on amounts owed to foreign businesses, this can be more and cost your company. There are ways to expand and take advantage of the situation though, such as trading currencies through brokers. In order to help boost your profits, investing either in the national currency at its weakest before selling later, or putting profits into a safe haven currency are two possible ideas.
Contracts
There are ways that many businesses protect themselves against a negative impact from currency fluctuations when dealing with other businesses abroad. One way is to set up fixed contracts when buying or selling goods and services outside their home country.
With fixed contracts, temporary fluctuations in currency value will have little effect. Buying imports prices will be set for around 12 to 18 months ahead, with future options available to hedge against any potentially dramatic movements in the exchange rate, such as Britain actually leaving the EU.
If you run a business, then it is important to be aware of all these factors that can affect it when your national currency is weak.
Subscribe to our newsletter
If you would like to receive our startup themed newsletter, full of the latest startup opportunities, events, news, stories, tips and advice, then sign up here.
Thinking about embarking on currency trading? Here are some basic tips that will help you do just that...

Thinking of using email marketing to promote your startup? Here are a few of the key things to consider when doing just that...

The lowdown on Fleex, the startup that helps companies provide remote employees with all they need to make working from home more comfortable

Judging panel now revealed for the LEVELUP startup pitch comp for early stage NI startups taking place at Derry & Strabane Enterprise Week - entries open until 10th April

Key speakers, panelists and sponsors announced for the LEVELUP event, taking place on 21-22 April as part of Derry & Strabane Enterprise Week

As we slowly emerge from the pandemic, here is an overview of a few of the key things that you can do to help set the foundation for a stronger year ahead

The lowdown on Leaf Envy, the startup that wants to help us all become plant parents and grow our indoor jungle of dreams...

Make sure that you have happy employees in your startup right from the beginning, by applying some of these basic tips...

"Mutt-rimonials" are on the horizon thanks to Woof Weddings, the UK's first dedicated wedding planning service for dogs

Manual secures major investment to help with product development and international expansion and its overall mission to become the global destination for men’s health
Published on: 20th July 2016
If you would like to enable commenting via your Startacus account, please enable Disqus functionality in your Account Settings.







- Huge rise in dog weddings leads Feast It and Poppy’s Picnic to launch dog wedding planning service 31st Mar 2021 "Mutt-rimonials" are on the horizon thanks to Woof Weddings, the UK's first dedicated wedding planning service for dogs
- Manual, the innovative Men’s Health platform Raises $30M Series A 31st Mar 2021 Manual secures major investment to help with product development and international expansion and its overall mission to become the global destination for men’s health
- Arbolus raises $6m for AI-driven platform that puts collaboration at the Future of Work 26th Mar 2021 The Barcelona-based startup Arbolus secures funding boost to support the development of its enterprise knowledge sharing platform and its international growth plans
- NI startup pitch competition LEVELUP opens for applications 25th Mar 2021 Interesting and innovative early-stage NI startups now being sought for the LEVELUP pitch competition at Derry and Strabane Enterprise Week