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Why foreign exchange is a risky business

When a company engages with someone like International SOS, you’d assume their relationship would revolve around travel security risks. But for Caxton FX, risk comes in the form of currency fluctuations.

The value of the pound can rise or fall 10% within a single week against some currencies, while on some transactions travellers can lose the same percentage by paying in Sterling rather than the domestic currency.

As a result travel buyers and their TMC advisers should think more strategically when sending staff abroad, argues Caxton’s chief executive Rupert Lee-Browne (pictured above) – and in particular as Brexit negotiations intensify.

“As Brexit approaches, we’re only going to see more volatility with Sterling,” he warns. “There’s a big opportunity for TMCs to help their customers. When you buy travel, it tends to be international, but many companies don’t use a forex specialist for travel expenses… using something like an Amex card, it’s an easy way, but it’s not the cheapest. TMCs can add value for their clients on foreign exchange.”

Caxton began life as an international payments provider 15 years ago, but made the move into currency expense cards 10 years ago. The payments division continues and it has its eyes on growing business travel. In the past five years, the company has revamped its technology to better integrate into clients’ IT systems, and Caxton recently teamed up with Global Navigation System to help shipping companies manage cash onboard ships through the use of “Voyager” payment cards.

Plugging in
“The corporate travel sector is growing phenomenally quickly,” Lee-Browne tells me. He believes that as the direct-connect trend continues and suppliers increasingly seek to plug directly into corporates, TMCs can use forex as an extra value-add. “Hotel groups are starting to bite into TMCs’ business,” he says. “But corporates go to TMCs for the full service. Hotels won’t be offering risk management, so TMCs have a better chance to forge better relationships.”

Lee-Browne believes there are clear advantages for expense management: “With Caxton’s travel card scheme, the financial controller can see the expenses, reconcile them, load or block funds for any number of users. They are able to buy the currency before it’s spent which gives financial certainty.” He also says Caxton can provide a “buy-back guarantee” – “We guarantee the rate in the event that funds are not used, so that gives corporates peace of mind.” This kind of hedging as a service can limit the downside for a TMC’s customer, but with sophisticated hedging tools they can participate in upside in certain circumstances, he adds.

When it comes to buying the currency, it can either be the TMC or their client that decides when to purchase. “It depends on the relationship and what the customer wants,” Lee-Browne adds. “It’s about removing friction for them.” 

As well as targeting corporate travel, Lee-Browne says Caxton has a significant share of the education travel market. “The number of trips schools take is growing considerably,” he says. “And with teachers having to manage all the expenses it is imperative for them to have a straightforward solution. It’s a growing area for us, particularly on recommendations amongst bursars.”

There’ll be a lot of talk about Brexit in the coming months, and those travel buyers not factoring in financial risk must be prepared to gamble. 

caxtonfx.com

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