Foreign exchange rate business management
Foreign exchange, or FX, can be complicated, especially for entrepreneurs whose business is buying or selling overseas,according to Mark Warms, BBVA's Managing Director, FX Product Head USA. But it makes sense to develop a currency risk management strategy, no matter the size of your company. Currency forward contracts “lock in” the exchange rate of a future payment in a foreign currency. For example, suppose you are an Australian importer of British woollens and have just ordered next year's inventory. Payment of £100M is due in one year, which at an AUDGBP exchange rate of 0.5 means a dollar outflow of $200M. The foreign exchange rate measures the price of one currency in terms of another. Exchange rates are volatile and open short or long currency positions can lead to sizable losses. Management Process