How Fluctuating FX Rates Affect Your Business
March 23, 2018
Never miss an articleSign up for weekly content
The stability of foreign exchange (FX) rates is very important for businesses active in international trade. It’s easy to see why: the final price of the products you’re importing/exporting depends on the value of your counterparty’s currency against the US dollar.
While you can’t influence the general stability of FX rates, you can make sure that you choose financial providers that offer the best deals.
While you can’t influence the general stability of FX rates, you can make sure that you choose financial providers that offer the best deals. Read on to find out more, and how Veem can help.
Why FX Rates Fluctuate
Most currencies, including the US dollar, float freely against each other, which means that their respective value is determined by market forces.
If global demand for a certain currency goes up, its value rises. But if many major investors suddenly flood the market with large amounts of a single currency, its value will decrease. Since global trade never rests (after all, evening in the US means morning for Japan, and vice versa), currencies lose and gain value all the time.
In addition, there are many internal factors that influence the strength of a currency. The stability of government, economy, and central monetary policy are just a few examples, and all have an effect on a country’s currency.
How This Affects Your Business
In today’s connected world, everything affects everything. Even if you don’t directly import or export, you most likely buy supplies that may have been manufactured abroad, at least in part. In this case, fluctuating FX rates have an indirect impact on your business.
If you’re sourcing products from overseas, or selling your goods in other countries, you know how seriously FX rates affect your business. A drop in the value of the USD may mean you suddenly have to pay more for the same number of products. Similarly, a rising USD value or a drop in your counterparty’s currency saves you significant amounts of money.
A drop in the value of the USD may mean you suddenly have to pay more for the same number of products. Similarly, a rising USD value or a drop in your counterparty’s currency saves you significant amounts of money.
Unfortunately, there’s nothing you can do to keep your FX rates stable. But the good news is, you can still save money. How?
Watch the Trends
As we said before, the value of currencies go up and down all the time. If your order isn’t urgent, try to monitor the trends and see how your supplier’s currency is doing against the USD. Wait for a favorable FX rate before making your purchase.
Wait for a favorable FX rate before making your purchase
Put It in Writing
When negotiating a deal with an international business partner, make sure to include a clause to mitigate risks arising out of currency fluctuation. For example, you can decide to use the medium exchange rate perceived on the day of signing the contract, or you can allow to modify the price according to the FX rate on the day of payment.
These are just a few examples. There are several ways to diminish the risks of currency fluctuation. Ask your lawyer about common practices, and choose the most favorable option for your business.
Choose Your Service Providers Wisely
Sending international transfers costs money. On top of unstable FX rates, you need to deal with wire fees, and a large array of hidden costs banks put on your transfer. Not to mention the delays and other uncertainties associated with the process.
Why not try Veem? Due to our unique multi-rail technology, Veem routes your transfer through the most cost effective channel, ensuring a fast, safe, and low-cost transaction. You can track all your transactions on your dashboard.
What’s not to love?
Sign up for a free Veem account and enjoy favorable FX rates.