Are you an Importer or Exporter? A Forward Contract could Add Certainty in Uncertain Times

Are you an Importer or Exporter? A Forward Contract could Add Certainty in Uncertain Times
Last Updated: 08 Apr 2021

If you are an importer or exporter who sells your products and services all around the globe, volatility in the currency market can add significant risk to your business's cash flow.

With an ever-evolving economic landscape and having to manage different country regulations, currency transactions, and integrations in various payment schemes, the complexities of running a business in today’s climate is no easy feat.

Forward Contracts are a powerful solution to protect your business from FX market risk, giving you and your business cost certainty in your international business transactions.

What is a Forward Contract?

A Forward Contract is a “hedging” tool that does not require an upfront payment. When two parties sign a forward contract, they agree to trade a certain amount of one currency for another currency at a later predetermined date while setting a targeted exchange rate for the future trade at the same time.

Benefits of a Forward Contract:

  • Protecting your Cash Flow. Forward contracts allow you to protect your business profit against the impact of fluctuating exchange rates.
  • Delay payments. Using a Forward Contract allows you to book funds at the desired exchange rate to be used at a future date, because of this you do not have to pay for the full cost of your transfer until it is placed, which in some cases, could be up to twelve months into the future.
  • Pick your rate. Forward Contracts give you and your business the power and flexibility to secure an exchange rate that suits your financial needs for the foreseeable future, allowing you to better manage your business's finances.
  • Transparency. Forward Contracts provide you and your business with full transparency of your costs with guaranteed rates to be utilized at a future date, allowing you to forecast efficiently and secure your profit margins, and better manage your budget.

There are Two Different types of Forward Contracts that you can Book for your Business:

  • A Standard Forward allows you to buy or sell a fixed amount of currency at a fixed rate on a specific future date.
  • A Flexible Forward allows you to buy or sell a fixed amount of currency at a pre-determined rate over a set date range in the future. The contract can be drawn down at any time before the end date.

Both Standard and Flexible risk management strategies can be applied for incoming and outgoing payments and can be booked for various time periods, most commonly for twelve months into the future.

Forward Contacts for Importers

The main benefit of utilizing a Forward Contract as an importer is to control and mitigate your exposure to foreign exchange volatility, especially within today's market. A Forward Contract will give you peace of mind on the cost of any of your overseas contracts. Even if the currency pair that you are dealing with when importing fluctuates between the time of the agreement, delivery of goods, and the payment of the invoice, your will be secured.

Forward Contracts for Exporters

As an exporter, booking a Forward Contact to sell a currency allows you to secure a targeted FX rate to be used at a future date. This enables you to know how much in your home currency you will receive.

Booking a Forward Contract will make goods more attractive to buy as you are removing the currency volatility from the deal. This can allow you to be very competitive on your pricing strategy and at the same time, still secure your profit margins.

Ask yourself these questions when Thinking of Booking a Forward Contract:

  • Would the transparency of knowing your FX rates upfront be a benefit for your business?
  • What is the fixed budget you would like to achieve?
  • How often are your goods repriced due to impact and movement within the FX market?
  • What is your lead time to convert your payment proceeds? What impact does this have on your cash flow certainty?

MTFX Risk Management Strategies Will Protect your Business Across Borders

Learn more about how our solutions can help you retain your local customers and expand your international business. Contact one of our market experts for a free consultation and we will show you how foreign exchange currency risk management strategies can protect your business while increasing profits.

Open your account and stop paying exorbitant bank fees. We have the tools, expertise, and platform to help improve your cash flow and extend your overseas business footprint.

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