Mastering Currency Exchange

By QuickBooks Canada Team

2 min read

As a small business owner, who is considering expanding your company internationally, it is likely that foreign currency exchange rates are the last thing on your mind. It is more probable that you are contemplating other factors, such as how to export or import the highest quality of goods for your business, how much travel you may be doing, and how you’re going to foster relationships with your vendors. However failing to take into account the forex exchange factor could wreak havoc on your bottom line.

Is Forex Trading for My Small Business Really Necessary?

The currency market has always had a high rate of volatility, and volatility has grown in the past few years. As of late 2016, 10% fluctuations in currencies have become the new normal, as uncertainty about the social, economic, and political landscape of a number of countries has grown. If your base currency, or the currency you currently have, is robust when you move your capital offshore or pay for imports, you are going to get more for your money. By keeping an eye on market trends and forex exchange rate movements, you can transfer your money overseas at a lucrative time.

Managing Your Company’s Foreign Currency Transfers

The simplest way for you to manage your forex transfers is to do a little due diligence and research by talking to foreign currency exchange providers and traders until you identify one that meets your requirements and is able to manage your transfers in a cost-effective manner. Some entrepreneurs decide to use their banks international currency transfer services. However, there are many currency brokers who can secure a better exchange rate for your company while introducing risk-management strategies simultaneously.

Moreover, a good broker is going to keep you informed of the most recent market movements. Some brokers even provide services that banks cannot offer, such as the ability to fix a favourable forex rate for as high as two years before you make a trade. When choosing a path for your small business, you want to consider the frequency and size of the currency transfers you need to conduct, in addition to the manner in which you plan to protect your company from foreign currency risk.

Hedging Your Risk

Additionally, you may want to consider using forward contracts, which are financial instruments that lock in a previously agreed-upon price over a specified time period. Forward contracts are extremely helpful for businesses such as wine importers that put out prices months before receiving their wine. While you have to pay a commission for the contract, you are given peace of mind in return. Furthermore, firms such as the Associated Foreign Exchange usually charge commissions of less than 1% of the forward contract’s transaction price. Locking in a forex exchange rate may limit your upside, but you also gain comfort and focus knowing your business will not lose money on account of movements in the currency market.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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