[Merged]Brexit stuff

[scooterscot]

Don't importers with large foreign currency exposures, such as those that import base materials from overseas - don't they hedge their exchange rate risk with forward contracts? Do you think they turn up at the post office the day before payment with a bunch of fifty pound notes to exchange for euros?

I don't believe they've agreed a hedge until the end of time.

[vetran]

Is this one of of those Google interview questions?

no but everyone loves a sailor!

[scooterscot]

no but everyone loves a sailor!

Well they shouldn't.They sail from port to port.

[Paddy]

Don't importers with large foreign currency exposures, such as those that import base materials from overseas - don't they hedge their exchange rate risk with forward contracts? Do you think they turn up at the post office the day before payment with a bunch of fifty pound notes to exchange for euros?

Manufactures will have a certain amount of pre-paid stock paid for at the bargain GBP rate. That will be short lived. Most manufactures will not have the cash flow to buy forward rates or make forward contracts, furthermore; forward rates are less favourable in uncertain times like now. I am very experienced with imports and exports. The low pound is a disadvantage in both ways.

In the pre-EU days the UK had exchange control and individuals were only allowed to take £10 increased to £30 per year for out the UK on trips (Increased to £1000 per trip in the late 70s). When I wanted to buy goods from Europe I had to open a foreign currency account, of which (according to law) I was not allowed to be in credit. I had to borrow Deutschmarks from Barclays International and put the equivalent amount of GBP in a Deposit account. I would need permission from the BoE for each trade. The bank would then produce a letter of credit to the German supplier. I was a very cumbersome system. Two or three days being held up at Dover customs was not unusual. I used to get the ferry from Oostende because the French were b******. Even if you had the right paperwork, they would make life difficult for the British unless you were buying from France in which case they did not bother with any rules at all!

We have a lot to look forward to with Brexit.

[Fronttoback]

I don't believe they've agreed a hedge until the end of time.

The whole point of a hedge is that it is done ahead of time. Those that don't hedge choose to do so because they either can't afford to hedge, or because they cannot guarantee that they will be able to produce the goods that the hedgeable future payment relates to (or because they want to speculate- lets ignore those). These are small farmers for example, they do not meet the profile of the kind of outfit that would be economy damaging. They would be hedging, surely.

[GB9]

And when those manufactures can no longer afford to import raw material with the weaker pound, what then?

Assuming the business is profitable and they are selling for more than the cost of production, how could they not afford the raw materials?

[BlasterBates]

The whole point of a hedge is that it is done ahead of time. Those that don't hedge choose to do so because they either can't afford to hedge, or because they cannot guarantee that they will be able to produce the goods that the hedgeable future payment relates to (or because they want to speculate- lets ignore those). These are small farmers for example, they do not meet the profile of the kind of outfit that would be economy damaging. They would be hedging, surely.

That's right large exporters are hedging and that's why the short term effects of a devaluation are positive. Eventually of course the hedges expire and the manufacturer is faced with increased import costs.

[scooterscot]

Assuming the business is profitable and they are selling for more than the cost of production, how could they not afford the raw materials?

Exactly. Unless the currency was so weak.

[Paddy]

Assuming the business is profitable and they are selling for more than the cost of production, how could they not afford the raw materials?

You have missed out the fact that the manufacture would have to increase the price of its product and the consumer may then choose not to buy it. Wages will not increase just because the pound has been devalued.

A hypothetical example would be a manufacturer that imports rose oil to use in perfumes. Rose oil cannot be produced in the UK and there are only two countries in the world that produce it. Demand outstrips supply. Once the pound falls, it is too expensive to buy or to pass the cost on to the consumer.

The European joke in the 70s was that if you saw a car with GB on it; it meant Gone Bust.

[Flashman]

The fishermen are living in dream land.

That fishing area is so fanciful they may as well extended the area to the Falkland Islands and included the North and South Atlantic

https://en.wikipedia.org/wiki/Exclusive_economic_zone

An exclusive economic zone (EEZ) is a sea zone prescribed by the United Nations Convention on the Law of the Sea over which a state has special rights regarding the exploration and use of marine resources, including energy production from water and wind.[1] It stretches from the baseline out to 200 nautical miles (nmi) from its coast.