Introduction
Travel soothes your soul, Makes you realize the beauty of this world which is invisible to look at with naked eyes while sitting at your homes. And so, to realize something, you got to see it; to see, you need to be at the place of desire. Being there is facilitated by money, the sole standard of exchange & survival no matter where you are. Now, how is this exchange made? Forex Industry, Ladies and Gentleman is the host here! Forex Exchange is the market facilitating exchange of money in the form of currency. Forex comes into picture when the travel is International.
Economic Impact of COVID
Due to the ongoing Pandemic COVID-19, forex industry stopped generating revenues even before the lock down was imposed. With reduced international travels & reduced trade, and on and off lock downs today, revenue generations have hit an all-time low. Tourism, a potentially large employment generator is also a significant source of foreign exchange for India. But being the center of the target of COVID, joblessness in India is bound to begin with the Tourism & Hospitality Industry due to less travels which I turn, impacts Forex. Forex is a $60 billion industry for a year for India. It may shrink to $25 billion being the washout one for the year.
Each Industry’s survival depends on the stakeholders that stay connected to it. And when the Industry itself is hit, it is bound to have some effect on its stake holders.
Impact of Covid on Stakeholders
Banks
Banks might have functioned all through the Lock downs to meet the financial needs of the citizens. However, there is a reduction in the exchange of currency due to less travels & trade. With imports falling by 46.7%, less reserves have been used to pay for the expenses. This has further resulted into jump in the chunk of reserves for foreign exchange. The main source of exchange surge is Trade & Travel in the international land & waters. We feel banks might have to wait a significant period to deal in money exchange again.
Foreign Exchange Brokers
Foreign Exchange Brokers today don’t have much of an income source except Remittances, provided they haven’t diverted their scope of work. Again, it is directly connected with travel & trade, which are at their minimal today. Here, we can’t bifurcate the Short- Term & the Long- Term Impact of the same as the uncertainty is for a longer term than it appears. With increasing cases of COVID day- by- day, it is difficult to undertake even domestic travels. Forex Exchange Brokers might take at least 6 months to start generating revenues.
MNC’s
Short- Term Impact:
Due to reduced trade & business operations, MNCs have cut short their need of currency as they have themselves barred Travels to their minimum. In such a case, it is not feasible to spend on currency exchange for them. Reduced Imports & exports by 46.7% & 30.3% respectively are the evidences of reduced demand of trade & in turn, slowing down of businesses & operations as a whole.
Long- Term Impact:
However, due to opening of the trade gates in recent times, Imports, Exports & Operations might again start flourishing at a steady pace.
Individuals & Small Businesses
Leisure Travel can take 8- 12 months to be at the same pace as before again or a little closer to it while Business Travels can start a little earlier. In such Life threatening scenario, it is difficult to demand for currency of other country where the demand for travel itself is shed. Small Businesses today have been tested for their survival, how immune they are to the lock down effects & the virus. A lot of them are winding up to fetch ways of survival as the businesses are dying & gulping up the finances along with it. In such a case, it is difficult to predict the need for currency.
What we can do?
Those who dare to innovate will survive this risk of newness. There is hardly any space available in future for Forex Market. Consumers will eventually reduce their travels post pandemic, unless it’s for leisure. Also, they’ll be attracted more towards digital products then physical forms of currency. This will considerably make it really difficult for small to mid-sized FOREX players to survive if they don’t get ready with the plans of what they should do. Demand for foreign currency will come up tomorrow, if not today. However, they will be different in wanting to procure and consume. If you are waiting for markets to reopen and restart dealing in traditional way – you are waiting for the dead-end. This is the time where industries may not invest even a single penny in chasing the market but at the same time, players looking at the futuristic opportunities must invest their full energy in adapting / developing futuristic products. Introduce facilities that you can still provide, Tie-up with large institutions or develop solutions to offer innovative digital products like Instant Remittance, digital forex wallets and forex cards.
Author:
Shivangi Makhija, A PGDM in Finance by education & a Business Analyst at J. Hirani has worked for Power Backup & Forex industries so far. She is a spontaneous & a wanderer at heart, yet focused & patient which makes her versatile in her own ways!
Guide:
Parth Hirani, is leading a strategic advisory practice at J.Hirani & has helped various organizations align strategies across continents. A social & collaborative sapien by nature. He enjoys being a full time “dreamer” & loves challenging “possibilities”.
Success mantra- “We believe it’s possible; while maintaining flexibility on “How” we are “Rigid” on our “Goals”
About J.hirani: J.hirani is a Strategic Transformation team which works as a growth partner for different organisations in various industries by providing services like Agile transformation, Scenario mapping, Strategic alignment, Balance scorecard, Digital transformation, Incubating new ventures, Operation excellence and Aligning human capital.
©J.Hirani, Forex: What’s Next?, September 2020. All rights reserved.
