How to navigate changing currency markets when buying services from overseas
When dealing with overseas currencies, changes in the currency markets and exchange rates could potentially change the amount that your business will need to pay.
April 29, 2021 — 3 min read
If your business imports tangible objects from another country—such as goods, food products, materials, or machinery—then you’ll need to pay in that country’s currency. However, this doesn’t just pertain to tangible goods imported from overseas. If your business requires services from overseas employees, contractors agencies or service providers then you will also need to pay invoices or contracts in their local currency.
When dealing with overseas currencies, changes in the currency markets and exchange rates could potentially change the amount that your business will need to pay. When making regular payments—such as contract payments—having the right solutions to protect your business from market volatility can protect your business’s bottom line and keep your costs level.
What are your exposures?
Understanding your business’s currency risk exposures is the first step to countering them to protect your business. You’ll want to consider:
How frequently you’ll be making payments
Which currencies you’ll be dealing with
What type of payments you’ll be sending
How volatile your currency pairs are.
Use forward contracts to protect your business from market motion
If you know that you’re making payments in a volatile market, one solution you can use to reduce the impact of market motion is a forward contract.
A forward contract is a payment method that differs slightly from a typical spot transfer. Rather than making an immediate payment at the current exchange rate, it instead allows you to lock in the current rate and set a date for the payment to be sent at today’s rate.
Here is what you would do:
Specify which currencies that you’d like to exchange and provide the amount you need to pay. This will give you a quote at the current rate.
Enter the date that you’d like to send your payment.
Provide your payment information as well as your recipient’s information.
Once that date hits, the transfer will automatically send at the secured rate.
Forward contracts are a valuable tool for price protection as well as peace of mind. You can secure a favourable rate for your transfer, and you won’t need to worry about missing your payment or the markets moving in the days leading up to it. Your payment will already be secured and scheduled.
If you have a contract, then you know you’ll be making payments. With a forward contract, you can secure favorable rates ahead of time so that even if the market changes, the amount that your contract costs your business won’t.
Working with Xe can protect your business from market motion
A knowledgeable and experienced international business payments provider can help your business to weather the currency markets and easily navigate your payments, so you can focus on your business.
At Xe, we have nearly 30 years of experience in the currency markets. We work with over 13,000 businesses around the globe and offer them the right solutions for their operations, size, industry, and currency needs.
Some of our solutions include:
Easy-to-use business payment products including spot transfers, forward contracts and market orders.
Personalised FX risk management tailored specifically to your business.
Knowledgeable support from our team of currency experts.