Widespread ignorance in British business over currency trading and a lack of knowledge about hedging are the key conclusions from a recent survey by Travelex, the foreign exchange specialist.
Half of the businesses surveyed had no understanding of hedging at all, while four-fifths felt that though currency movement was important, they declined to use any FX tools to guard against the risk.
"People have made hedging into something far more complicated than it is when in reality it is only insurance against currency fluctuations," notes Yogesh Shetty, group director of commercial foreign exchange at Travelex.
Payment decisions, according to the survey, are invariably allocated to administrational staff with little or no expertise in the area, and for whom FX transactions form only a small part of their job function; 90% made spot payments due to lack of knowledge and minimal internal controls.
"Everyone understands insurance because it is part of our everyday lives but somehow hedging has been given this veil of mystique," adds Shetty. "Most of the blame for this mystique and confusion stems from traditional dealers who don't sell the benefit of mitigating risk, but sell jargon-based products, which both confuses and scares their customers."