Over the last few years, numerous different factors have had an effect on currency value, and businesses have, as a result, also been impacted. Because of developments including inflation and interest rates, the overall economy has long influenced foreign exchange rates, as highlighted through poor retail sales having an adverse effect on the value of the Great British pound.
Due to this phenomenon, we’re going to analyse what currency pairs are, and look at the available tools for those seeking to get involved in the global trading market. Moreover, we’ll also look at a number of examples which highlighted how businesses have been affected by currency fluctuations.
Currency Pairs and Their Status
Within the global forex industry, currency pairs relate to situations where one currency is valued and then quoted against another. Once this has been done, the two quotes are categorised with one being classified as the primary base currency, while the other is referred to as the quote currency. In order to identify different currencies more precisely, each is written with particular ISO currency codes, ensuring that their identification on the international market is consistent.
Even though each currency pair is identified through their respective ISO codes, there are still differences regarding the status of specific pairs. For example, within the market, all “major” pairs contain the US dollar because of the fact it’s one of the most frequently traded. Moreover, those that don’t include the US dollar are known as “crosses”, while major crosses - those non-dollar pairs that feature other major currencies, such as the euro - are commonly referred to as “minors”.
What are the Benefits of Using a Forex Broker to Trade?
At present, the foreign exchange market is undoubtedly one of the world’s largest sectors and currently boasts a trading volume of approximately $5.3 trillion per day. There are a number of benefits to utilising the forex market, including the fact that when you participate online, you are able to trade from anywhere in the world without restrictions. Moreover, the fees involved are lower than traditional trading stock, making for a more competitive market.
Prior to trading, it’s advisable for anyone taking an interest in this increasingly popular pursuit to have a look around and do some research to find the best broker. This is due to a number of different factors, including the fact that they quote a price at which they are willing to deal. At present, there are many available brokers, which, in turn, makes it somewhat difficult to know which ones to trust. That said, there are several aspects to consider. Checking whether particular brokers are regulated will ensure a greater level of security and protection when trading. Furthermore, varying brokers will offer different accounts, each of which will have its own deposit requirements and benefits. Crucially, this is beneficial to traders with contrasting levels of experience, as each type of account and type of platform has different pros and cons.
Examples of the Impact on Businesses
As a result of the fluctuating nature of currencies on the global market, several UK-based companies have benefitted from the reduction in the value of the pound during the confusion and instability of Brexit. GlaxoSmithKline is a British pharmaceutical company that operates all over the world. Following changes to the value of the pound and the knock-on effect that has had on currency pairs, the organisation were forecasted to enjoy a revenue boost of 2 per cent in 2019. Back in July of 2019, the company declared that its revenue rose 5 per cent at constant currencies to GBP7.8 billion, according to a report on Market Watch. Recent forecasts, however, place the company’s adjusted earnings per share to fall by between three and five per cent.
GSK operates all across the globe and recently sold two vaccines totalling approximately £800 million to Bavarian Nordic, a biotechnology company based in Denmark. Crucially, although vaccines such as these offer lower margins, they assist in providing steady revenue to offset other fluctuations in the company. In the first quarter of 2018, GSK grew under pressure after Advair, a respiratory blockbuster drug, lost patent protection. As a result, concerns emerged that due to this fact, combined with the strengthening of the pound against the dollar, US sales would decline.
Outside of the pharmaceutical sector, the travel and transport industries have also been affected by fluctuation currency values. In Hungary, budget airline Wizz Air has suffered in recent years due to the correlation between fluctuating values and the growing cost of fuel. Additionally, Flybe, who are based in the UK, have also suffered following the lack of certainty around Brexit and the resulting implications that’s had on the value of the GPB compared to other currencies, such as the USD. In relation to fuel, for example, this volatility means that the above airlines may have to pay more to refill in the US if the value of the dollar is high.
Moreover, in 2016, International Consolidated Airlines Group blamed Brexit-caused fluctuations for a £124 million foreign exchange loss after the GBP reached its lowest value in 31 years. Furthermore, and while many companies have been affected by varying currency values in recent years, Uphold, a US-based digital money platform, recently introduced zero-commission trading which attempts to relieve some of the constraints within the current forex market. Through offering this service, their new interface allows customers to trade directly, and thus they become free from the limitations of currency pairs. While not affecting business in other sectors, such moves show that currency fluctuations and their results can have different types of impact on each company and sector.
Fluctuating Values Can Have a Sizable Impact on Business Longevity and Profits
Ultimately, it’s clear that the volatility of currency valuations is having varying effects on different companies in numerous sectors. While organisations such as GSK in the pharmaceutical industry have enjoyed success through the global selling of vaccines to offset negative fluctuations, airlines have struggled to adapt following the uncertainty of Brexit as the implications of the UK’s withdrawal from the EU have threatened both their profits and, in some cases, their very existence.
