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Protect profits and improve your
international payments processes.
INVESTMENT
Foreign exchange is a challenge to many
businesses when trading with countries
such as India, but there are ways to
e
mitigate the currency risks and improve the
payment processes.
Fluctuations in the currency market, banking
restrictions and payment processing speed are
just some of the factors that can pose challenges
for Australian businesses doing business in India.
But with over A$17 billion of exports and imports
in 2008-2009 and with increasing requirements for
hang
foreign exchange, there are important reasons for
getting it right.
By understanding the payment options available,
businesses are able to plan and manage the associated
xc
risks, ultimately protecting the business’ bottom line.
currency hedging Programs
Currency hedging is a common practice and essential
to protect your business from currency fluctuations. exchange conversion the Australian business, is
Hedging does not mean speculation; instead hedging ultimately able to get a better deal.
your currency exposure is similar to an insurance policy However, while paying in local currency has clear
against adverse movements in the currency markets. operational advantages, there is still some currency
An effective hedging strategy can minimise the risk risk to the importer when negotiating rates for the
your company is exposed to and ensure that the conversion. Depending on the market conditions a
success of your business is dependent on your core second option for mitigating exposure is using a forward
business operations rather than fluctuations in the contract. A forward contract (FC) effectively allows you
eign e
currency market. to buy INR at today’s market price, while delaying the
Even if a business you deal with operates in a settlement of the contract to some future point in time.
restricted currency there are still products and services Meaning businesses are protected against exchange
available that can help your business save on costs. rate fluctuations.
The first option for making payments is to pay your Two types of FC’s are available. A non deliverable
for
suppliers in their local currency, in this case the Indian forward contract (NDF) allows you to pay or receive
Rupiah (INR). Paying Indian suppliers in US dollars currency from your Indian suppliers and customers
(USD) involves two separate transactions and additional in USD while hedging the risk of the INR eventual
fees and costs. Payments
in the local currency involve
only one foreign exchange
conversion, allowing an
easy and more transparent
transfer of funds. Both
parties benefit – the Indian
supplier knows exactly
what they are receiving
and is able to provide
quotes that do not have to
allow for USD fluctuations,
and with only one foreign
28 INVEST IN AUSTRALIA – INDIA
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