The latest earnings results on the NGX show that blue-chip brands that include Airtel Africa, Guinness Nigeria, Nigerian Breweries, and Cadbury Nigeria lost a significant amount of money due to FX exposures.
An abysmally wide gap has emerged between the official rate and the black-market rate (N870/$) because of a dollar shortage at the official market. In addition, the naira-dollar exchange rate recently sold off at an intraday high of N869/$1 at the counter for investors and exporters.
With the Federal Reserve announcing hawkish plans to combat inflation, it seems likely that the USD will remain volatile and the currency of choice in an uncertain FX market in Nigeria.
Making the most of international opportunities means setting up your business for seamless foreign currency transfers, as well as making sure you stay smart about exchange rates and other potential fees.
As exchange rates fluctuate, you may find your costs go up and your profits go down. However, there are some things you can do to protect your business and profits.
Direct Hedging
Direct hedging is the most common simple hedging strategy.
The institution takes a long position in a currency pair while simultaneously taking a short position in that same pair.
Direct hedging is not a way of making money as it rarely generates a net profit.
However, it provides relatively effective protection against currency fluctuations, allowing companies to make bolder operating decisions knowing that there is a degree of consistency against exchange rates.
Early Payment Is Encouraged
If you face currency fluctuations because you sell to international customers, setting up payment terms upfront is the easiest way to protect yourself.
Requiring all or part of a prepayment from a customer means eliminating or reducing the risk of exchange rate fluctuations between the time you accept the contract and the time you get paid.
If you’re concerned that customers won’t respond well to immediate payment terms, offering an early payment discount will encourage them to choose this option.
Discounts or other incentives, such as credits for future purchases, give your customers a financial reason to pay sooner.
