Running a business in cooperation with foreign contractors can be risky as the rates of currency exchange change. Significant price fluctuations may translate into profits or losses. Is there any way for business owners to protect themselves against unfavourable shifts in the foreign exchange market?
If your company exists through contracts with partners in foreign countries, it means you are likely to be faced with the issue of currency conversion sooner or later.
In this way, the risk associated with the potential fluctuation of the exchange rate of one currency in relation to another is defined in the economy. When you exchange currencies, from your perspective, exchange rate fluctuations can lead to both worsening and improving trading conditions.
Regardless of whether your company’s area of activity is services, production or trade, you may be exposed to exchange rate risk in accounting with international business partners from other countries.
It must be said openly that there is no magic recipe for completely eliminating currency risk. However, it is worth knowing the rules that will allow you to limit any possible losses while exchanging currencies.
1. Instalments and steps
Exchange rates depend on many factors. They include data on the economic situation, economic publications, statements of central banks, political events and global trends. It is difficult for someone who does not work with financial analysis on a daily basis to keep up with the multitude of these variables. At the same time, they are the ones that influence the appreciation and depreciation of currencies.
If you have a large financial operation to conclude and, at the same time, a good exchange rate, you can gain a lot. Unfortunately, in the same way, an unfavourable exchange rate can mean a loss. Therefore, it is not worth betting on blind luck and hoping that you will be lucky with every large transaction connected with currency rate.
Exchange rate risk can be reduced by spreading a larger amount of money over several smaller transactions, and instead of a single operation in a month, for example, it is better to perform four to five transactions in equal time intervals. This reduces the probability that a single event (often random), which pushes the quotation of one of the currencies up or down in a short period of time, will decide on the cost-effectiveness of the entire process.
2. Set your own terms of currency exchange
Nowadays, cross-border trade agreements can be implemented without any particular concerns about currency exchange conditions. From a UK bank account in pounds, you can transfer money to a counterparty in euro in such a way that funds are credited to the counterparty’s account, e.g. in euro, korunas, francs or forints.
However, there is a high probability that banks will convert the amount on the terms they impose and, in addition, add commission onto the transactions. In general, it is more advantageous to pay in the currency expected by the seller of goods or services. It allows controlling the transaction costs.
3. Look for services that are cheaper, safer and with benefits for business customers
Extra benefits can be gained from services that provide online currency exchange and money transfer solutions. Conotoxia.com has such an offer. Users can choose from 26 currencies from all over the world and send international money transfers to 30 European countries. Business customers can rest assure that transactions are secure and transparent. Additionally, better rates and low spreads are offered for large transactions. Moreover, Conotoxia Collect is a service specifically designed for business customers. It enables the integration of inflows from business partners from different countries into one of the currencies on offer.