Today, technology enables global investors to electronically transmit $1.3 trillion daily to all corners of the world at unprecedented speed. Consequently, governments and central banks can no longer manage their currency fluctuations to the same degree as in the past. This can have serious implications for your business.

The Risks Are Increasing

As the speed of capital flows accelerates, foreign exchange and international business transactions will continue to soar, further limiting government control. This will expose traders to ever greater currency risks.

Unfortunately, this comes at a time when accepting foreign currencies can give U.S. exporters a much needed advantage over the competition.

No Warnings Given

Factors affecting currency fluctuations are complex and are contingent on seemingly independent activities, rhetoric, and highly fluid capital shifts, in addition to macroeconomic, social and political forces. As such, predicting whether a currency value will increase or decrease is very difficult and extremely risky.

The Asian financial and Mexican peso crises are two relatively recent examples where severe currency devaluations struck without warning. They not only demonstrated how fast-moving events can devalue currency markets, but also the magnitude of damage that can be inflicted on their economies and others around the world.

Establish a Sound Prevention Strategy

To protect yourself against adverse currency fluctuations, it’s essential to manage your foreign currency exposure. But, this requires more than research-based predictions — it demands a sound hedging strategy that plans future receivables, payables and capital flows.

Solutions That Work

If you exported goods to Thailand in February 1997 with payment in Thai bahts due in 90 days, you would have lost a great deal; within a very short period of time, the value of the baht dropped almost by half. With our solutions, you’ll be able to structure the deals you want, with the protection you need.

Through the use of spot, forward, forward with a window, and option contracts, you can accept foreign currencies from your importer at a later date, but lock in the U.S. dollar exchange rate now. This will protect your business against adverse currency fluctuations.

How Do These Hedging Strategies Operate?

Spot contracts convert the buyer’s currency at the current rate for settlement within two business days. A forward contract allows the exporter to lock in a rate of exchange leaving the settlement date open for three days to 12 months. A forward contract with a window goes further by specifying the exact settlement date. Unlike the above contracts, an option contract allows the exporter to cancel the settlement date indefinitely.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




More Articles | Speaker Programs | Speaker Demo | Videos | Services