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Currency Exchange Fluctuations Can Put Your Business At Risk

Currency Risk management, Business Risk Fluctuation

Whether you’re selling overseas or buying overseas, much of your business strategy must include managing the effects of exchange rate changes.  Foreign currency conversion fees can also increase the cost of doing business when purchasing, making raw materials and supplier payments.  

Know how foreign exchange rates can affect your bottom line, and leverage that knowledge to make the best overseas deals. You are not only exchanging goods and services, but you are also exchanging the value of one currency for another. 

About Exchange Rates

Exchange rates fluctuate with the economic and political fortunes of countries. Volatility in the foreign currency exchange market results from the practice of currency pairing. That pairing is based on liquidity, trading volume, and volatility. Exotic pairings like CAD/HUF (Canadian dollar vs. Hungarian Forint) can be prone to high volatility due to local or global events.

Even in developed countries, speculators like George Soros have made fortunes on foreign exchange volatility. When Great Britain was forced to devalue the pound sterling, Soros took a short position on a $10 billion trade and ended up with a cool $1 billion profit.

Exchange rates can also have an indirect effect on a business, even when the business doesn’t deal in foreign exchange. For example, transportation costs are directly connected to the price of fuel. When fuel prices and the foreign currency exchange rates fluctuate, the cost of doing business can be indirectly impacted.

Let’s explore the more direct impacts of foreign currency exchange rates on your business.

How Foreign Exchange Transactions Can Affect Your Business

For those who just need to keep their business running profitably, currency fluctuations and exchange rate movements can be a big deal if your business:

  • depends on income from overseas operations
  • exports or imports services and goods to/from abroad
  • must pay invoices overseas
  • interacts in any way with foreign currencies

When closing a deal worth thousands of dollars, a fluctuation one way or the other of just a few cents on either side of the bottom line can be the tie-breaker in the success of the deal.

Do the math: if you ship a load of goods to an overseas buyer worth $50,000, a fluctuation of just 3 cents in the currency exchange rate could result in a $1,500 loss—or gain--depending on which side of the deal you’re on.

What happens when your domestic currency exchange rate falls

You also need to be aware of how your currency stacks up against the rest of the world. If your currency de-valuates, the decrease in value of your currency can result in the following: 

  • Investing in overseas operations becomes more expensive.
  • Your business becomes more attractive to foreign investors.
  • Higher costs for imported goods can reduce the profits for importers, but attract investments for exporters.
  • Domestically produced products become more competitive against imports.
  • Capital expenditure involving importing equipment, etc., becomes more expensive.
  • Servicing foreign currency debt also becomes more expensive.

...but when your domestic currency exchange rate rises, the opposite occurs:

  • Exports become less competitive, and the exporter's profitability is reduced.
  • The value of investment in foreign businesses and monetary assets is decreased.
  • The income from foreign currency from investments is reduced.
  • The cost of foreign raw materials goes down and importers realize an increased competitive advantage.
  • The value of foreign currency liabilities and the cost of servicing those liabilities are lowered.
  • Capital expenditure costs in imported equipment go down.
  • Your business is less attractive to foreign investors.

Managing the Effects of Exchange Rate Changes with MTFX

So, no matter which side of the currency exchange equation your business is on, exchange rates can have an effect on your business’s bottom line.

Then there is the hassle and expense when banks get into the mix with conversion or transaction fees. Banks typically reduce their own risk in handling foreign money with their own premium charges. They frequently use an intermediary bank, which, in turn, adds its own transaction fee.

Also, foreign exchange conversion to local currency has its advantages. You either have no choice or prefer to pay your overseas customer in the local currency. However, you need a simpler, less time-consuming way to send direct, fast payments.

Maybe you have a long-range overseas business expansion plan, but want to wait for a more favorable foreign exchange rate to make your big investment move. With a forward contract you can get today’s lower rate for future purchases without worrying about market volatility.

MTFX does all the above and more for small and medium businesses across a variety of industries. You will also receive up-to-date foreign currency exchange rates as well as daily/weekly/monthly market analysis from experts, who are dedicated to helping your business stay ahead of foreign currency exchange volatility.

 

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FAQs

Individuals and businesses who need to send money in foreign currency internationally can use MTFX’s services. The beneficiary of the transfer must have a bank account for the funds to be paid into. Personal clients usually use our services to transfer money between their own accounts in two different countries. Business clients usually use our services to transfer funds to suppliers, fund international operations, or repatriate overseas earnings.
MTFX offers currency exchange rates that are 2-5% better than those offered by the banks. Personal clients usually save hundreds of dollars per transfer and for larger transfers, the savings can run into the thousands. We also offer excellent customer service, dedicated currency specialists, and a 24/7 online platform with best-in-class technology that allows you to complete transfers from any device virtually anywhere in the world. Business customers save with better currency exchange rates and proven solutions geared towards managing and mitigating foreign exchange risk. Our solutions include forward contracts, market orders, rate alert services, and much more - all backed by great technology and great people.
Funds can be transferred via wire transfer, Electronic Funds Transfer (EFT), or ACH payment services. MTFX maintains bank accounts in all major currencies with highly-rated banks. Our banking infrastructure ensures that you can transfer funds to us quickly and securely.
Our global network of banking partners allows us to get funds to virtually anywhere in the world quickly and efficiently. Most wire transfers from MTFX will be received by your beneficiary within 24-48 hours. MTFX also offers same-day transfers that are almost instantaneous, as well as low-cost in-country payment services for your less urgent transfers. For further information please speak to one of our currency specialists.