FX Risk Exposure Is Burning SMEs, Says Study

Small and medium-sized enterprises in the U.K. and France are dangerously exposed to foreign exchange risk.

That’s according to new research from East & Partners, which released data to reporters on Thursday (Feb. 11).

Analysts found that only between 20 and 25 percent of SMEs in these countries are prioritizing the mitigation of exposure to foreign exchange fluctuations; without doing so, reports said, these companies can see a major impact on their bottom lines.

In a survey of more than 4,400 SMEs, East & Partners found that up to 90 percent of the companies with annual turnover of more than €20 million ($22.6 million) are using one of two strategies to avoid this exposure: option or forward contracts.

These tactics can help safeguard a business if revenue or payments made in the future differ from what is recorded in annual budgets due to currency fluctuations.

But for smaller businesses, researchers found that the figure of businesses using these strategies falls to less than one-quarter for U.K. SMEs and less than one-fifth for French SMEs.

The numbers are rising, however, and that’s a good sign, according to analysts.

“Clearly, there is more sophistication in how corporates are dealing with these issues,” said East & Partners Europe Head of Client Services Simon Kleine. “The trend in France is going in the same direction, but clearly, British firms, probably due to the focus on currency trading in London, are slightly further ahead.”

Analysts also concluded that some French banks have a more robust strategy when it comes to the business currency market compared to U.K. banks, according to reports.

The full report is slated for publication this weekend.

The research on foreign exchange risk for SMEs in the U.K. follows earlier analysis released in January from Money Mover, which concluded that banks in the U.K. are spiking the fees charged to SME clients using banks’ cross-border payments services.