Managing currency risk

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Managing currency risk

a.  Use dual invoicing 

Dual invoicing, simply put, is getting two prices for anything purchased from abroad - one in sterling and one in the supplier's domestic currency (then paying the cheaper).

How it helps:

  • Saves you money and reduces currency conversion costs
  • Gives you more information to choose the best international payment option
  • Strengthens your company's buying power with international suppliers

b.  Set forward contracts 

A forward contract is an agreement with the bank to exchange an agreed amount of foreign currency on a specified date in the future, with the exchange rate fixed at the time the contract is entered into.  

The benefits are:

  • You know your cashflow in sterling terms, making budgeting and forecasting easier.
  • You can take advantage of attractive foreign exchange rates prevailing in the market for delivery at a date in the future

On the other hand, you can't benefit from a favourable move in the exchange rate which happens after the date on which you entered into the contract.

c.  Set up a multi-currency account

A multi-currency account allows you to hold multiple currencies within a single account (and one account number/set of login details!). It's even more convenient than having a number of accounts in different currencies. 

Advantages include:

  • Helps you avoid paying excess foreign exchange fees 
  • Allows you to manage your different currencies all in one place - you can get paid by a customer in one currency and then pay suppliers or employees out in another.
  • Can hold up to 20 or 30 currencies (depending on your provider) and often add a new currency using online banking
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