When one is trying to receive the most attractive foreign exchange rates and either increase the profitability or decrease the cost of foreign transactions, there are a variety of options depending on the level of activity involved. Options range from simple bank exchange rates, to active trading in the forex and forward markets, to using a dedicated foreign exchange broker. Each of these options will have varying degrees of required involvement, and will likely produce different results.
For one-time transactions, small international payments or for businesses that is doing very little international business, the usual choice is one of the high street banks. This will likely be an institution with which a relationship has been established, and as such, a reasonable rate can be received. Contacting one’s primary banking contact and ensuring that he or she remains involved in the process will increase the probability that a competitive rate is received, but for infrequent transactions, the benefits for the company can be minimal.
The next option is to establish a forex account with a reputable broker and then to actively trade in the currencies in which one does business. This has the advantage of allowing for a highly specific hedge to be managed as one sees as prudent, and will keep transaction costs relatively low. The clear downside of this approach is that it requires a certain level of expertise and a time commitment that may exceed what is realistic. If one does pursue this approach, over time one will develop the skills to have a solid sense of both the likely direction of rates, but of how best to protect one’s natural exposure. If one’s operation is sufficiently large, employing a forex trader or hiring a trading firm may be an option as well. Overall, this option allows for the greatest level of precision, but is unrealistic for many businesses.
A final attractive option is employing a foreign exchange broker to aid in identification of the most attractive rates and assist in transactions. This process, as is the case with the above options, will be best served if the business is able to accurately forecast their need for foreign exchange management from sales projections and expected payment schedules. Forex trading, and foreign exchange brokers, can use specific financial instruments to lock-in a specific exchange rate at different points in time. The more accurately a business can predict its needs in this department, the more aggressively attractive rates can be pursued; one does not want to actively lock-in set exchange rates only to later discover that they are not needed and have resulted in a financial loss for the business rather than a protective measure. While foreign exchange can be managed and maximized, businesses should not lose focus on their primary objectives.
Posted under Business News
This post is a Sponsored Article on November 11, 2009
