Questions

Is there a safe solution for currency exchange rates?

I do some business with Polish companies. I wonder if there is any solution to secure currency exchange rates?

3answers

Hi, this is a tough one! We work internationally and use https://transferwise.com to pay many of our providers. The exchange rates are the best on the market (that I have found!) although they obviously fluctuate. Hope this helps somewhat!


Answered 4 years ago

There is a solution: forward contracts or options contracts. However, in order for these to work, you need predictable future revenue streams, and the amounts need to be large enough. For example, if you know that you will be paid 400k in Polish Zloty on January 15, you can secure the exchange rate today. Doing so with a forward contract obligates you to the transaction though - if you don't have the Zloty on January 15, you are in breach of the contract.

Options give you an option, not an obligation. However, unlike forward contracts, options sometimes carry an up front premium.

Options and forward contracts are two different hedging strategies that can be used in foreign exchange. The big questions with hedging are:

1. What is the dollar value of you flow of Polish Zloty? Is it big enough to hedge?
2. How predictable is the timing of your future revenue flows in Polish Zloty?

One important thing to bear in mind: even if you don't have enough volume to hedge, you should be careful to not overpay for the transactions you have coming though. Lots of companies charge exorbitant exchange rates, and understanding the game of FX is important to make sure you get a fair exchange rate.

Please reach out if you'd like more info on this.


Answered 4 years ago

There are many secure solutions for currency exchange available - both with banks and reputable currency exchange companies.
I can recommend a London based currency exchange company that is listed on stock exchanges and gives better rates than banks, one that specialises in business exchange - feel free to get in touch if you would like me to put you in contact with them.


Answered 2 years ago

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