AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
Part of the guideOne account, every currency: a guide for cross-border businesses
The short answer
A small business hedges currency risk by reducing how much of its margin depends on exchange rates. The usual sequence is: match currencies where you can (pay dollar costs from dollar income), use target-rate orders for flexible conversions, and fix the rate with a forward contract for large, known payments or receipts. Hedging part of an exposure, rather than all or nothing, is common and keeps some benefit if the rate moves your way.
Currency risk is simple to describe: you agree a price in one currency today and settle in another later, and the rate moves in between. For a business on thin margins, a move of a few per cent can remove a large share of the profit on a deal. This article sets out the tools in order of complexity. The hedging section of our guide to multi-currency business accounts gives the short version.
Step one: measure the exposure
Before choosing a tool, write down what is exposed and when. A one-page view is enough for most small firms:
- List expected receipts and payments in each foreign currency over the next three to six months, with dates and amounts.
- Net them off. If you will receive $80,000 and pay $50,000 in the same quarter, your exposure is $30,000, not $130,000.
- Mark which items are firm (signed orders, invoices) and which are forecasts.
- Note the rate you used when pricing, so you know the rate at which a deal stops being profitable.
- Decide who in the business can approve a hedge, and up to what amount.
Firm items are candidates for fixing; forecasts are better handled with partial cover or target rates, because you may never need the currency.
The tools, from simplest to most formal
| Tool | What it does | Cost | Best for | Trade-off |
|---|---|---|---|---|
| Natural hedge | Pay foreign costs from income in the same currency | None beyond holding the balance | Businesses with income and costs in the same currency | Only covers the matched part |
| Target-rate order | Converts or alerts when the market reaches a rate you name | The normal conversion cost | Surplus balances with no fixed deadline | May never trigger; no protection if the rate moves against you |
| Forward contract | Fixes today the rate for a conversion on a future date | Built into the forward rate; a deposit may be required | Large, firm payments or receipts | You are committed and give up any favourable move |
| Currency option | The right, not the obligation, to convert at a set rate | An upfront premium | Uncertain exposures, such as bids not yet won | More expensive and more complex |
Forwards in more detail
A forward rate is not a forecast. It is today's rate adjusted by "forward points", which reflect the difference in interest rates between the two currencies over the period. Providers may ask for an initial deposit and, if the market moves sharply against the position, for more funds before settlement. Some offer window forwards, which let you draw the currency at any point between two dates.
In the UK, a forward bought to pay for identifiable goods or services, physically settled, can fall outside MiFID II under what is often called the means-of-payment or payment-purpose exclusion. That reduces reporting for the business, but it can also mean fewer of the conduct protections that apply to regulated investments. A forward used to hedge a balance sheet or an overseas asset does not qualify. Use an FCA-authorised provider and read the terms on deposits, early and late settlement, and what happens if you cannot take delivery.
Options, briefly
A currency option gives you the right to convert at a set rate without the obligation. If the market moves in your favour, you let the option lapse and convert at the better rate; if it moves against you, you use it. You pay a premium upfront for that flexibility, which makes options better suited to uncertain exposures, such as a tender you may not win, than to routine supplier payments. Options are not covered by the means-of-payment exclusion, so they are regulated investments.
Worked example: a $200,000 order due in 90 days
A UK retailer orders $200,000 of stock, payable in 90 days, and expects to sell it for £180,000. When the order is placed the rate is $1.30 per £1, so the stock costs £153,846 and the expected gross profit is £26,154. The rates below are illustrative.
| Outcome in 90 days | Rate | Unhedged cost | Fully hedged (forward at 1.2960) | Half hedged |
|---|---|---|---|---|
| Pound falls 5% | 1.2350 | £161,943 | £154,321 | £158,132 |
| No change | 1.3000 | £153,846 | £154,321 | £154,084 |
| Pound rises 5% | 1.3650 | £146,520 | £154,321 | £150,421 |
Unhedged, a 5% fall in the pound adds £8,097 to the cost and cuts gross profit by 31%, to £18,057. The full forward removes that risk, at the price of giving up a £7,326 saving if the pound rises. Hedging half keeps the outcome within about £4,000 either way. There is no right answer, only a choice about how much uncertainty the business can carry.
A simple hedging policy
Many small firms use a written policy along these lines, reviewed each quarter:
- Hold enough of each currency to cover one to three months of costs in that currency.
- Fix firm payments or receipts above a set size with forwards, covering 50% to 100% depending on margin.
- Cover forecast exposures partially, for example half of the next quarter and a quarter of the one after.
- Convert surplus balances with target-rate orders rather than in a rush at month end.
- Never hedge more than the underlying exposure; that turns a hedge into a bet.
Two mistakes are common. The first is treating a hedge that lost money against the spot rate as a failure: a forward did its job if it fixed the cost you priced on. The second is hedging forecasts too heavily, then having to unwind contracts when the sales do not arrive.
Accounting and tax follow the instrument. For UK companies, exchange gains and losses on forwards generally fall under the derivative contracts rules, which broadly follow the accounts; our article on foreign currency accounting covers the revaluation side, and an accountant should advise on hedge accounting. The cost of each conversion matters as much as its timing, so see hidden FX margins too.
Where Pryme fits
Pryme accounts hold GBP, EUR, USD and NGN with local details in each, so dollar income can pay dollar costs without conversion: the natural hedge. Swap converts at a rate shown before you confirm, and its "When it hits" option lets you name a target rate and wait, with your approval before anything executes.
For forward contracts or options, use a provider that offers them; the sections above explain what to look for, including FCA authorisation and the terms on settlement. Outside Nigeria, Pryme's services are provided through regulated partners. The multi-currency business account guide covers how holding, converting and protecting money fit together.
Questions people ask
What is the cheapest way for a small business to hedge FX?
Matching currencies: paying foreign costs from income in the same currency, so there is less to convert. It costs nothing beyond holding the balance. For what remains, target-rate orders and forwards are the next steps.
Is a forward contract the same as a fixed exchange rate?
In effect, yes: it fixes the rate today for a conversion on a future date. Unlike a quote that lasts seconds, it commits both sides to the amount and date, and the provider may ask for a deposit.
Are FX forwards regulated in the UK?
Forwards are generally financial instruments, but a forward used to pay for identifiable goods or services and physically settled can fall outside MiFID II under the means-of-payment exclusion. Use an FCA-authorised provider and check which protections apply to your contract.
How much of my currency exposure should I hedge?
Many small businesses hedge firm commitments heavily and forecasts lightly, for example 50% to 100% of signed orders and less for expected sales. The right level depends on your margins and how much a rate move would hurt. Never hedge more than you will need.
What happens if I cannot use a forward contract?
You are still committed to it. If the underlying deal falls through, the provider will usually close out or extend the forward, and you bear any loss from the rate move since you agreed it. Check the terms on early and late settlement before you sign.
Sources
- HSBC: Excerpt from FCA Policy Statement PS17/14 on FX contracts under MiFID II · accessed Oct 2026
- Convera: Payment purpose exemption for FX contracts (UK) · accessed Oct 2026
- HMRC: Corporate Finance Manual CFM60010, foreign exchange overview · accessed Oct 2026
- CPDbox: IAS 21 The Effects of Changes in Foreign Exchange Rates · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.