Are you thinking About Doing Business Internationally? Here are the best tips for handling multiple currencies.
Keeping up with the volatile exchange rates in a global economy can be hard without the proper financial management team at hand.
Large conglomerates are likely to have an entire Forex team at their disposal for managing their finances across multiple currencies.
Tips for Handling Multiple Currencies:
However, small businesses, who are just starting in the import or export business, may find it hard to keep up with these currency fluctuations.
For example, if you are trying to tap into the Canadian market, just knowing the currency exchange locations Winnipeg or any other Canadian city for that matter is not enough when it comes to business.
It can work for a tourist but not a businessperson looking to make some profit in the trade. The best option for you would be to work closely with a reputable establishment that deals in foreign exchange.
That being said, knowing a bit about handling multiple currencies in the global market is still helpful, even with a financial team close by. It is good to know a bit, of what you are into.
So here are tips for handling multiple currencies if you are thinking of doing business internationally.
1. Find Out Your Exposure:
Businesses that transact in foreign currencies or have assets and liabilities in the same are often affected by the fluctuation in the currency exchange rates. This means that you can end up paying less or more than what you initially expected. This level of exposure usually affects cash flow and is called transaction exposure.
There is also accounting exposure, which can leave you with gains or losses. Therefore, it is up to you to get to know your exposure and plan for ways to safeguard it with different tools and techniques like a hedge. Financial experts can help you with this.
2. Charge Customers In The Local Currency:
It is a good idea to charge your customers in the local currency, this way you avoid the swapping of different foreign currencies.
If you opt to ask your clients to deal with currency exchange negotiations, then they are likely to steer away from your business making it less attractive and competitive in the global market.
3. Open A Foreign Currency Account:
If you tend to transact a lot in one foreign currency, it would be better to open up a foreign currency account. This would make it easier to have foreign fund when you need it, thus reducing the need for constant transfers.
Nonetheless, when you do make the transfers, wait it out until the exchange rates are favourable or use a Forex broker.
4. Make Use Of Hedge Instruments:
Hedging is investing to reduce the risks associated with unstable exchange rates. As a business, you can do it by purchasing instruments like currency options, forward contracts and swaps from brokers and banks.
With the help of a Forex broker or bank, You can easily plan and purchase any of these instruments, Whilst knowing the risks and benefits associated with all of them. So be on the know-how when it comes to using hedging instruments, as a means of handling multiple currencies in the global market.
5. Consider Advance Locking Of Exchange Rates:
Many businesses that are starting in the global economy do not have enough cash reserve to survive losses in the volatile Forex market. Therefore, it would be advisable to lock-in your exchange rate for a period by buying a forward contract from a broker or a bank. This way you get to plan your pricing knowing you will not make losses in the market.
However, take note that you will pay a commission for it and its termination comes at a cost. So be informed, as prices tend to vary depending on the contract.
6. Avoid Casino Fever:
Trying to beat the Forex market by buying one currency and selling the other for-profit. It can be risky for businesses starting in the global export and import of goods and services. It is also a waste of entrepreneurial skills and time, so avoid it.
7. Make Use Of Muti-Currency Accounting And Budgeting Tools:
Nowadays there are loads of accounting and budgeting tools that make it easier to calculate the gains, losses as well as the total currency exposure for several invoices. This means that you can view the worth of your foreign cash flows in one platform.
In the end, you save loads of time and make quick informed business decisions for continuous growth. You can research these multi-currency tools and opt for one with features that suit your business.
Conclusively, taking your business internationally should not worry you. If you do your homework very well, you will know that there are institutions and people ready to guide you.