Protect Profits from Currency Fluctuations
Quantum Microwave, founded by Andy Cobin and his wife in 2016, supplies high-tech components for quantum computers and radio astronomy.
The company’s primary product is manufactured in Sweden but sold in the US. The nature of their industry means that the product needs to be quoted with price guarantees to customers well in advance of any purchasing decisions being made.
In the first year, this had a significant negative impact on their profits.
On several occasions, a price guarantee was given and the exchange rate between the US Dollar and the Swedish Krona changed by the time the customer ordered the products, causing Quantum Microwave to lose most of its profit margin.
Realizing the significant impact this scenario has on the success of their business, Andy reached out to XE’s business services team.
XE, a subsidiary of Euronet, explained to Andy the value of creating forward contracts based on his company’s transactional risk.
Forward contracts allow Quantum Microwave to buy foreign currency when the exchange rate is favorable and to trade at a later date. This enables the business to guarantee a price to their customers without having to worry about jeopardizing their profits if the exchange rate moves against them between the quote being issued and the order being placed.
Quantum Microwave’s standard profit margin for the product they import from Sweden is 15%. In Andy’s experience, fluctuating exchange rates can impact this margin by 2% in either direction, giving him a margin range of 13-17%. With several million dollars’ worth of transactions to Sweden each year, this 4% range adds up to over $120,000, a significant margin for a small, fast-growing business.
Andy tends to check the exchange rates several times a day via the XE Currency app and online platform. With this strategy, foreign exchange rates are no longer a burden on his business but an opportunity to maximize profits:
“If I turn on the computer and I see that the dollar has gone up all the sudden, I buy as much as I can,” he said. “The flexibility of forwards really helps me to protect my profit.”
Read more about how XE supports Quantum Microwave here: https://blog.xe.com/business-spotlight-quantum-microwave/.