Here are some simple steps you can take to ensure you are managing your exchange rate risk effectively.Whether emigrating, buying a holiday home or purchasing goods from overseas, you can make very significant savings on your transfers by taking some simple steps to make sure you are getting the best deal and managing your exchange rate risk effectively.
Whether a small home based business or a multinational, the efficient management of foreign exchange is a critical factor in the profitability and stability of these businesses.
Getting The Best Deal
Most people don't realise that they do not need to use their bank for foreign exchange payments and forward contracts. Often just shopping around for the best rate can save clients 1-2% on their transfers. Providers such as OzForex specialise in foreign exchange and work hard to ensure you have a simple, cost effective transfer.
Managing Risk
The most common and effective way to manage currency risk is to use forward contracts. These contracts simply allow you to lock in exchange rates for future transfers and can be used for transfers up to 2 years in advance.
Another useful tool is the limit order. Placement of a limit order means you specify your desired exchange rate and should the market price fluctuate to that level, then your foreign exchange provider will automatically purchase the currency for you.
These are effective because you cannot watch the markets every minute of every day and you may miss out an advantageous, but short lived, rate improvement. While it is common for share brokers to offer limit orders, it is harder to find amongst currency brokers.
0 comments