If your business trades abroad, business foreign exchange will rule your world. A large business with over 50 employees may have access to the better business foreign exchange rates offered by high street banks. Small or medium sized businesses usually only have access to the tourist exchange rates. This can be bad news for your profit margins. Whether you trade abroad, or simply have business travel expenses, finding the best business foreign exchange rate available is a priority. Corporate FX will help, whatever the size of your company. There are various ways to handle your business foreign exchange contracts. ‘Spot contracts’ - binding agreements to buy or sell currency at the going rate within 48 hours of the agreement - make up 51% of foreign exchange contracts. These are the simplest contracts, good for urgent transactions, but dependent on market conditions. They also don’t protect you against foreign exchange exposure. In a forward contract, the agreed exchange rate applies to a specific purchase or sale on a specific date during the next two years. Changes in business foreign exchange rates are irrelevant. A mathematical calculation decides the rate, depending on the difference between the interest rates of the two currencies. This contract will protect against a downturn in the market, but won’t take advantage of an improvement. With a foreign currency option, you can make a business foreign exchange at a specific price and time – but you aren’t locked in. You make the most of a favourable market move, but can drop out if the change is unfavourable. Another choice is the Stop Loss order, where you specify a minimum rate at which you are prepared to trade. If and when the exchange rates fall, your order kicks in automatically. In a Limit order, you set a higher target exchange rate than is available currently. Your order triggers if, and when, exchange rates rise. A Stop Loss and Limit order side by side guarantee you a rate between two levels which you set. This combination can be a good way of minimising your exposure.
Please Rate this Article 5 out of 54 out of 53 out of 52 out of 51 out of 5
Not yet Rated
