If your company imports or exports products and services, then fluctuations in currency exchange rates will likely have an impact on profit margins. Your business goals may focus on exchanging currency at the current live FX rates. In this case you will likely be focused on securing the most opportune rates and equally achieving an efficient turnaround of funds, whether you are buying or selling currency and if you are funding your own currency accounts or paying a third-party beneficiary.
Alternatively, you may need to secure FX rates for future cashflows and requirements. In this case you will likely have forecasts of inflowing receipts of USD at intervals over the next 12 months or beyond. Fluctuations in exchange rates will have an impact on the value of those dollars versus your functional accounting currency GBP.
An example of future currency requirements would be an export service contract in USD. Your company agrees a contract with a customer over an extended period, such as 12 months. The contract may include stage payments every month or quarter resulting in a future inflow of USD over the next year.
In this example, your business would be impacted by GBPUSD exchange rate movements over the 12-month period. This can either be a positive or negative impact on the profit margin of the contract based on the direction of GBPUSD FX movements
You may prefer commercially to secure the contract from the outset to fix the business margin over the 12-month period. For example, you may fix monthly or quarterly forward contracts selling USD into GBP. Once your customer pays each USD increment, you then settle against the forward contract rate.
If there is some uncertainly around cash flow timings, you can secure forward contract on a window or open basis. This would allow for cash flow delays in the event either the customer pays later than expected or the contract is delayed operationally. In practice, rather than settling the forward contract on a specific date, you can settle over a time-period to help manage changes in USD receipt timings.