How to Protect Your Business from Foreign Exchange Exposure

Contents

    What is foreign exchange exposure?

    The abundance of products and services traded on international marketplaces comes with a great number of international payments.

    The risks involved in making financial transactions in foreign currencies are referred to as foreign exchange exposure.

    Currencies can fluctuate like bad weather.

    Your profit margins and cash flow can experience dramatic shifts.

    Strategies for pre-emptive and effective hedging can usually mitigate this kind of volatility.

    Your company secretary may even offer some help when it comes to post-trading money management.

    Foreign exchange exposure can be reduced by employing the appropriate currency strategy to your global supply chain payments and critical accounts.

    For example, some companies engage in contracts that will lock in exchange rates for one to two years.

    Minimizing Foreign Exchange Exposure 

    There are fundamental foreign exchange exposure management tools you need to be aware of but remember, your business is unique.

    You’ll want to choose a strategy that is tailored to your specific goals and risk tolerance.

    You may also discover that a combination of risk management tools will work best for you.

    Spot Orders 

    Spot transfers are your most basic option for exchanging two currencies.

    This risk management tool includes the details between an end-user and their financial institution.

    There are a number of variables to be agreed upon before a foreign exchange transfer can be made.

    Such as:

    • What two currencies will be bought and sold
    • What amount of currency will be transacted
    • What exchange rate will the transaction occur

    Forward Exchange Contracts (FEC)

    This is for the businesses that want to buy now and pay later.

    Perhaps your company doesn’t have the budget to deal with sudden market shifts and wants more of a sure thing.

    An FEC allows you to lock in a guaranteed currency exchange rate for a future transfer at a specific date.

    FEC’s can make the most of your savings by partnering up with Spot Transfers and Limit Orders to gain from any prosperous market movement.

    Be unlimited with Limit Orders

    Wouldn’t it be great if you could pick a specific rate for your foreign currency transfer and be notified when your target number is hit?

    That is what a limit order is.

    You get the opportunity to set a rate that works for your business without having to keep daily tabs on the market.

    Let us remind you of the market unpredictability that occurred during the Brexit updates or the U.S.-China trade war.

    No doubt, there will be more fluctuation to come.

    Limit orders can provide you peace of mind, leaving you to take full advantage of favorable markets by rolling them together with FEC’s and Spot transfers. 

    Strategy Comparison:

    Spot Transfer FEC Limit Order
    Transfers money as a single exchange Lock in a favourable rate and transfer later Allows you to lock in a target rate, with option to market monitor*
    Uses the rate secured at the time of transfer Can be used for up to 12 months* Can cancel at anytime*, or roll into an FEC
    Great for everyday transfers and risk management Good for sensitive pricing schedules Helps mitigate risk in uncertain markets
         

    Exchange rate valuations will primarily affect payments to overseas suppliers or from overseas clients.

    If your business is mainly done on international marketplaces, your profit margin may be seriously hit if you do not have control over when you choose to bring home your hard-earned cash from overseas.

    Having a proper foreign currency exchange management tool will reduce your currency risks and support your business by having access to better exchange rates and services.

    looking for a partner to help you with your FX payment needs?

    Open a business account with Statrys today, and your FX needs will be handled by professional FX desk traders to reduce your exposure on your next big payment.

    85% of our customers open their account in less than 48 hours.

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