If every currency traded at the same rate, economic specialisation and comparative advantage, wouldn’t have created our modern financial markets. And international business wouldn’t have taken off in the way it has. But, currency rates do vary against one another. Driven by a combination of supply and demand, and relative economic, and political performance.
Many businesses make it their business to know how currency is performing at any given time, using information services like Bloomberg Markets. But, if your business deals with imports and exports in any way, how currency performs can have a real impact on your bottom line — especially if you have a tight margin to work with.
If the Australian dollar is performing well, buying more American dollars than it was a week ago, it’s good news for consumers and importers. If the Australian dollar goes down against the American dollar, exporters find that their products are more competitive. When one side performs well, the other suffers. It’s why it’s so important to pick the right time to send money worldwide.
Knowing that the markets can change so easily means that your business is uniquely placed to make the most of the uncharted waters ahead. There are plenty of options available so that you can pick the best time to perform a foreign exchange — starting with forward contracts.
A forward contract is an agreement you or your company makes, which locks you into agreed-upon rates for a defined amount of time, whether you want to transfer currency online or perform other kinds of forex money transfer. You could miss out on more favourable rates, but the huge advantage of this method is being able to plan for the set period you agree the forward contract to. Stability is possibly more important for your company than a better exchange rate, so think about this option carefully.
Using peer to peer currency exchanges instead of more traditional banks may seem riskier for a business, but peer to peer foreign exchange services are subject to the same regulation that banks are, and usually offer more favourable rates. Where banks tend to give one rate that nets them a tidy profit at the end of the day — either through imposing large margins or by taking a cut of your money — peer to peer exchanges connect you with businesses like yours that just need to exchange or send currency overseas.
If you’ve started your own business and it’s doing well enough for you to think about sending money overseas, there’s a large chance you already know how to balance risk and strategy. Is it worth taking a risk on foreign exchange rates? Have you built it into your strategy so you know what to do and how to make it work if the exchange rates change and aren’t as favourable to you as they were before? Will you be using a currency broker or will you be finding other ways to transfer the money? Questions like these can make or break your plan, so it’s important you have the answers for them before you start out.
It’s important, too, that you know exactly what market your business could cope with—and there’s no shame in postponing a more ambitious strategy.