WestpacTrust Advises Exporters to Take Steps
WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia
7 June 2002
WestpacTrust Advises Exporters to Take Steps to Manage Currency Risk
WestpacTrust is advising exporters to consider taking steps to lock in export returns as the value of the New Zealand dollar continues to rise.
WestpacTrust General Manager Business and Agribusiness Julian Nalepa said the bank was concerned that smaller exporters were not getting adequate advice on how to manage currency risk.
“For smaller exporters or companies new to exporting, the strengthening New Zealand dollar could erode already fine profit margins, and there has been a lot of concern expressed already about the potential impact on our economic growth,” said Mr Nalepa.
“The New Zealand dollar has been undervalued and we have been forecasting its rise for some time. Our latest forecasts point to the kiwi dollar potentially reaching as high as 55 cents US by the middle of next year. WestpacTrust’s advice to exporters is to take appropriate steps now to manage foreign exchange risk and create greater certainty for their export earnings.
“There are several banking solutions provided by WestpacTrust that exporters – large and small – can use to manage their risk of decreasing returns as the New Zealand dollar rises,” said Mr Nalepa.
Mr Nalepa said choosing the right banking product to manage risk would depend on factors such as how much foreign exchange exposure an exporter had and the degree of certainty they required for future export earnings.
“If an exporter wanted full certainty on how many New Zealand dollars they will receive for their foreign currency at a future date, we would recommend a Forward Exchange Contract. These are usually taken out for periods between three days and twelve months. The exporter may miss out on favourable currency movements but is protected against adverse movements.
“A Forward Exchange Contract can be taken out for as little as $5,000, with the amount required to secure the product ranging from two percent of the face value for a three to fifteen day contract, up to fifteen percent for twelve months.
“Another alternative for exporters is a Currency Option or Currency Insurance. An option protects the amount of New Zealand dollars the exporter will receive for their foreign currency at a future date, and lets the exporter take advantage of favourable currency movements.
“Options start from $50,000 and are typically taken out for a period up to 180 days. An up-front premium is also charged, which varies depending on the amount, term, currency and volatility at the time the transaction is made,” said Mr Nalepa.
Mr Nalepa said that foreign exchange fluctuations will always be an issue for exporters and that exporters needed to be aware banks such as WestpacTrust can provide them with helpful advice and services.”
“We want exporters to know that no matter what their size, we can provide them with expertise and affordable products which can help manage their risks and provide greater certainty as the kiwi dollar strengthens,” said Mr Nalepa.