Foreign exchange exposure is the risk to a company while making financial transactions in foreign currencies. Currencies can go through periods of high volatility which can negatively affect profit margins if your cash flow is not protected from sudden fluctuations. Exchange rate risk can usually be managed with proactive hedging.
If your supplier payments or accounts are based in foreign currencies, you may choose a targeted currency strategy to reduce foreign exchange exposure. These strategies usually involve contracts that allow companies to lock in an exchange rate for an extended period of time, say one to two years.
How can I limit foreign exchange exposure to my business?
There are a number of tools that can help you limit your foreign exchange risk.
- Spot transfers
Spot transfers specify the terms of an exchange of two currencies between an end user and their financial institution.
- Forward Exchange Contract (FEC)
If you need to lock in a rate but aren’t ready to transfer now, you can use this option and use today’s currency rate for a future transfer. An FEC can eliminate the worry of future market movements.
- Limit Orders
Market risk can also be managed with a Limit Order, where you can set a target rate and then experts monitor the market for you. If the rate hits that target, you’ll be notified and you can make the transaction. This allows you to select a rate that works for your business, and protect you if markets become volatile.
If you are looking for foreign currency exchange without any hassle in Dallas, Texas, call Texas Currency Exchange at 888-975-6009. At Texas Currency exchange, we will help you with any questions about exchange rates, the type of currency you will need for your travels and more.