Manage foreign exchange risk for imports
Protection against changing exchange rates.
If you agree a purchase price in a foreign currency, the cost to you in pounds sterling could increase if that currency strengthens against the pound.
One way to protect yourself is to insist on dealing in pounds, shifting the risk to your supplier. However the supplier is likely to want to increase their prices to reflect this risk, or may be unwilling to deal with you at all on those terms.
Alternatively, you can protect yourself against changes in the exchange rate using forward foreign exchange contracts or currency options. These allow you to fix the exchange rate at which you can buy the foreign currency. Read more about foreign currency and exchange risks.
It's worth bearing in mind that even if you protect yourself for a particular contract, you still face longer-term risks. For example, a supplier in a country with a strong currency might no longer be competitive the next time you want to place an order.
If you want to place regular orders with a supplier, you may be able to protect yourself for longer by agreeing a fixed price contract, or arranging medium-term foreign exchange protection. At some point, however, you may need to look for alternative suppliers. It's worth keeping up to date with what's available elsewhere. Read more about how to manage overseas suppliers.