Your Business Makes Global Payments, But Have You Managed Your Exposure To Currency Risk?
In Australia today, there is a significant increase in international import/export, and a growing global marketplace is the main reason for this. As such, there has never been a greater need for fast, secure and low-cost FX payments.
But this increased opportunity comes with substantial risk to your future business earnings. This risk is made up of unnecessary costs from foreign exchange providers and potential losses incurred by adverse movements in foreign exchange rates.
But how do you know if your business needs to manage its currency risk?
Does your company:
- make international payments
- receive international payments
- pay overseas employees
- have non-domiciled assets in need of maintenance
So now that you know whether you need to manage your currency risk, how do you take action?
Step 1. UnderstandingUnderstand the causes of currency risk exposure. There are a number of reasons for currency fluctuations including:
- global events from terrorism to natural disasters
- data releases by central banks and financial institutions
- national and international policy changes
When trying to make international payments these are often worsened by;
- uncompetitive exchange rates offered by the banks
- high transaction fees.
For example, if you are an importer who buys inventory in USD, a rise in the value of the US dollar could result in you spending more AUD to meet the USD buying price.
Alternatively, if you’re an exporter with a price list in AUD, a fall in the value of the Aussie dollar could mean less AUD in return for your product.Additionally, by making payments through your bank, you are subject to the bank’s prevailing exchange rate. These rates can be 3-4% higher than a currency specialist like OFX, meaning a payment of $100,000 may cost you up to $4,000.
The same transaction through a currency specialist could cost as little as $1,000, saving you as much as $3,000 in a single transfer.
Step 2 – InformationStay informed of potential currency movements by signing up below to our domestic and international market news. Our OFX Market News and Daily Commentary keep you informed of significant currency shifts.
You may not have access to your bank’s treasury department, but at OFX, we have currency specialists on call 24 hours a day, seven days a week to understand your needs and present our range of options.
Step 3 – Action
Whether you make international payments once a week or once a year, it could be worthwhile building a currency strategy with your immediate business needs in mind. There are a number of money management tools available.
To find out more about our currency risk management tools and how they can improve your net earnings, download our free, short Guide to Protecting Your Business Earnings From Currency Risk.