The Keys to Managing Risk in Volatile Markets

Last Updated: 13 May 2021

The Keys to Managing Risk in Volatile Markets

What businesses need now is an informed approach to managing the complex world of global payments. When it comes to managing a cross-border business, a customized strategy that shields you from market volatility and is designed to protect your bottom line is essential in order to grow your business around the globe.

The foreign exchange market can be overly complex and hard to manage. You may have many questions as a business owner; Why is the market moving the way it is? What impacts the value of currencies? How do I protect my business from fluctuating currency pairs?

The foreign currency market is the largest and most liquid of the financial markets, trading round the clock, six days a week. Partnering with an expert in this category, paired with utilizing a strategic set of risk management solutions, will ensure that you can navigate this market effectively and protect your business from future risk.

What are the Main Sources of Volatility in the FX Market?

There are many different reasons why the foreign exchange market fluctuates and delivers various levels of risk ranging from politics, the economy, interest rates and inflation, geopolitical and economic impacts, and the balance of trade.

When looking at certain currency pairs you may see more variation than others due to some countries' dependence on a particular export or commodity, and when prices change it can create a negative impact on the local economy. In some cases, even a hint of instability or change in monetary policy within a particular country can cause fluctuation in the market and major downside risks for your business.

Understanding the Different Types of Market Risk

There are many different forms of risk that your business can be exposed to when working across borders. Depending on which industry, country, and your purpose is for trading, you need to be aware of the different levels of risk that your business can be exposed to.

1) Transactional Risk

Transactional risk occurs when you are looking to exchange one currency for another. This is the most common level of risk that businesses are exposed to that can have serious effects on your bottom line and overall profitability.

2) Economic Risk

Economic risk is caused by many external factors, such as a natural disaster, a political restructuring, or a vast change in monetary policy. The current COVID-19 pandemic that everyone is dealing with around the globe is a real-time example of a situation that had significant economic implications that create high levels of volatility in the market.

3) Operational Risk

Operational risk can occur at any point in time for your business when it comes to your growth strategy. With an ever-evolving economic landscape and growing your business across borders, you deal with increased complexities such as having to manage different country regulations, currency transactions, payment processing, and settlement, along with integrations into various payment schemes. Your business workflows can be significantly affected by manual intervention, stunting the opportunity for accelerated growth to achieve business targets.

Limit your Exposure with Industry-Leading Risk Management Strategies

Every business owner requires a strategic risk management strategy that provides cost certainty and protects profitability from all forms of risk. The first step is identifying the type of risks your business may be exposed to and then building out a plan that will protect your cash flow in both the short and long term.

Once your risk levels are understood a customized strategy to protect your business should be developed. You may simply require a forward contract for securing a specific FX rate for use at a future date, or you may need a local in-market payment solution that allows you to hold funds in multiple currencies so you can better manage hundreds of transactions across various countries where your business operates. Ensuring that your strategy is flexible and can adapt to changes in the market and the needs of your growing business is essential.

Working with a third-party payment provider with years of expertise in the space, like MTFX, can help you retain your local customers while implementing customized strategies to expand your business around the globe.

In Conclusion

If you want to learn more about why MTFX should be your third-party payment platform provider contact one of our market experts. We will show you how foreign exchange currency risk management can protect your business while increasing profits.

Open an account with MTFX today to benefit from currency risk management in volatile markets and quick, easy money transfers.

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