How Currency Risk Can Quietly Erode Your Profits - And What To Do About It

You finally land the international deal. A supplier invoices you €100,000, due in 90 days. You check the current exchange rate, do the math in your home currency, and the margin looks solid. Deal done. Margin secured.
Or so you think.

Fast forward three months: the euro has strengthened. Now your local currency buys less - and that invoice ends up costing you thousands more than expected. Just like that, your margin’s gone.
This is foreign exchange (FX) risk. And it’s a real, everyday threat for small and medium-sized businesses.

What is FX Risk (Specifically, Transaction Risk)?

FX risk is the financial exposure that comes from currency movements between the time you agree to a deal and the time money actually changes hands. The most common type is transaction risk, and it hits businesses when they’re least expecting it.

Here’s a real-world example:
Invoice: €100,000
Today’s EUR/AUD rate: 1.60 → $160,000 AUD
If the rate moves to 1.68 → $168,000 AUD
That $8,000 swing may not be visible on your balance sheet - but it shows up in your profit margin, cash flow, and overall financial predictability.

Why it Matters More Than You Think

SMEs are especially vulnerable to FX risk because:
- They often don’t have treasury teams or formal hedging policies
- FX decisions are made reactively, or not at all
- The impact is hidden - it’s not a line item, but it affects everything from pricing to planning

Even small shifts in currency can:
- Shrink your profit margins
- Make cash flow harder to predict
- Undermine your pricing strategy
- Complicate financial planning and budgeting

The good news? You don’t need to predict the market. You just need visibility and a clear action plan.

3 Practical Ways to Stay in Control

You don’t need to be an FX expert or have a big finance team. Here are three simple, effective strategies that any growing business can use:

1. Use a Spot Transaction to Lock in Today’s Rate
If you’re ready to pay now, a spot transaction lets you secure today’s exchange rate immediately. This gives you certainty and removes the risk of adverse movements before the payment date.

2. Fix a Future Rate with a Forward Contract
A forward contract allows you to lock in a rate today for a future payment. It protects your profit margin, keeps your pricing consistent, and gives you confidence in your cash flow projections.

3. Use Smart Technology to Stay Informed
Modern FX platforms give you clear visibility of your currency exposure and let you set rate alerts, so you're notified the moment the market moves in a way that could impact your business. They also help you connect FX decisions to your broader financial strategy - so you stay proactive, not reactive.

Don't Let Currency Risk Catch You Off Guard

FX risk isn’t just for big corporates with global operations - it’s something every internationally-minded business needs to manage.

At Bretton, we help SMEs gain clarity, take control, and protect their profits - no jargon, no guesswork. Whether you're buying from the US, selling to Europe, or planning your next cross-border move, we’re here to help.

Ready to understand your exposure in under 2 minutes? Try our free Playzone tool.