Banking & Finance Developing your S FX TRATEGY
For many Australian businesses the complexity of dealing in foreign exchange can leave them confused and bewildered, but it doesn’t have to be so. By adopting a number of simple strategies, business owners and managers can take control, mitigate risk and develop a much stronger level of certainty regarding this essential part of their business. Generally your goal in developing a foreign exchange (FX) risk management program is to stabilise your cash flow and gain a higher level of certainty. Below are the primary ways to achieve this.
Consider opening a Foreign Currency (FC) account, particularly if you only deal in one of the major currencies
Funds can be managed directly from this account and you then have the ability to covert into local currency when the rate is preferable. Of course your ability to hold funds in an FC account over a period of time will be determined by the strength of your cash flow. Always remember it is important to gain a clear understanding of what fees and charges are applicable for holding an FC account to ensure the expense doesn’t outweigh the benefit.
Many small to medium sized companies may be able to hedge their FX exposure via a Forward Exchange Contract (FEC) An FEC is a contract to exchange one currency for another (e.g. sell US dollars to buy Australian dollars) at a specified rate, for a specified amount, for delivery on
a specified date sometime in the future (almost always within 12 months). The FEC rate and therefore the final amount is locked no matter what the exchange rate does over the period of the FEC. By entering into an FEC the customer has certainty regarding the amount of Australian dollars they will receive on the maturity date and therefore more effective cash flow management. It is important to understand that an FEC is a binding contract to exchange (buy or sell) one currency for another and that there is an element of risk associated with this product if you are unable to meet your obligation. With all such products it is in your best interests to fully read and understand all relevant literature, such as Product Disclosure Statements, to ensure you are fully aware of all the details and your responsibilities.
Partner with a foreign exchange provider who is able to exhibit demonstrable value to your business on a number of fronts The pillars of this relationship should include personal service through a dedicated FX specialist, an understanding of your business and payment cycle, relevant market commentary and a secure and intuitive trading platform so you can transact with confidence, all underlined by a reputable, reliable and secure brand. If you have found a provider that ticks all the boxes that are critical for your business, it makes sense to leverage that relationship and plan cooperatively for future growth. Once you’ve enacted your FX strategy, the final piece to the puzzle is to regularly review and monitor the effectiveness of your plan and determine what outcomes have been realised. An annual review will allow you to continue and enhance the successful aspects of your strategy and refine those areas that did not meet your expectation.
Barry Fletcher Head of Sales FX International Payments American Express
Australia China: BEYOND TOMORROW 115
AUSTRALIA
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