Promoting Your Products Internationally
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The Currency Problem
The currency problem creates a risk factor for any company importing and/or exporting. While your product is being shipped, you may be losing profits due to relative changes in currencies against the US dollar or whichever base currency is used in the country you’re in.
Overseas buyers usually pay for imports in their own currency so they know exactly what they are paying, before the intermediary bank converts the funds into the local currency to pay the exporter.
You had calculated that you were to receive USD $400,000 for a shipment of 10 new automobiles that your company has exported to Germany. However, before your shipment arrives overseas and your buyer is due to take delivery, USD has weakened against Euro leading to you receiving only USD $375,000.
On the contrary: Instead of a weakening US Dollar, it strengthens against your buyer’s local currency. By the time your stock arrives, the buyer ends up paying more in their own currency to equal the US Dollar value which you both initially agreed upon but now they don’t want to accept the delivery and end the sale.
Currency savvy importers and exporters protect their companies from currency fluctuation risks through hedging. All global companies use currency hedging to ensure that profits aren’t being eroded. If you have a small to medium size business, you can hedge too!
Some ways your company can mitigate against the risk of currency fluctuation
Leading banks offer what’s known as a “currency forward contracts”. This is effectively an agreement to exchange a certain amount of domestic currency for a certain amount of foreign currency at or by a future date. As a buyer, this essentially allows you to fix your exchange rate for an import purchase. Similarly, as a seller, your export sale is made at the live exchange rate, guaranteeing both parties a fixed price for the transaction.
But there’s a better solution, read on….
Our Global Payments offer an alternative better way of mitigating against currency risk, through a Variable Flexible Spot Contract.
Why is it better?
- Lock in your exchange rates – Certainty improves your cash flow
- No international wire fees – Simply pay in your local currency
- No draw down fees – no additional charges or fees for making a draw down
- Make your drawdowns online – Simplify your transfers, no need to phone in or email
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