This is Money: 'Hedging has saved us thousands of pounds': How importers can protect themselves against a falling pound
The pound has fallen 6.5 per cent this year alone against the dollar dropping to a two-and-a-half-year low and has hit a 16-month low against the euro. With the Bank of England forecasting more inflation, importers face being squeezed by ever increasing costs.
Gareth Heald, UK finance director at Western Union Business Solutions, says: 'Our import clients are telling us how tight margins are.
Sofa, so good: Chris Prashad uses a forward contract to guarantee rates
'With fragile consumer demand it's likely many businesses are absorbing currency fluctuation costs rather than passing them on to consumers.'
Experts urge firms to protect themselves against currency swings. One way is through a forward contract - an agreement to buy currency at an agreed rate at a set time in the future - which means the buyer has hedged their bets against future swings. Such contracts are offered by high street banks and HiFX, Currencies Direct and WorldFirst.
Chris Prashad and her husband Garry set up Love Sofas two years ago, starting with a shop on eBay to test demand for their 'quality but low-cost' furniture. Soon they were selling 30 sofas a week.
Chris, 57, and Garry, 61, have since set up their own website lovesofas.co.uk and have a 50,000 sq ft showroom in an old mill in Huddersfield
The couple sell an average of 125 sofa sets a week and have a turnover of £4 million. Because they import from China they are vulnerable to currency fluctuations. On average they pay $60,000 (£40,000) a week to their suppliers and, says Chris, 'every 1p drop in sterling against the dollar potentially costs us £600'.
Last year Chris and Garry took out a forward contract for $1.4 million with Western Union. Chris says: 'We now pay £450 a year for unlimited transactions with Western Union.
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