The fundamentals of foreign exchange (FX)
To make the most of your exporting venture, it’s important to have proper payment systems set up, as well as an understanding of the current exchange rates. Make sure you’re aware of economic policies such as interest rate changes and inflation. If the FX rate changes when importing or exporting, you could end up either paying too much for imports, or not getting enough for exports. You need to know which FX method suits your business best. That way you can lower any risk as the dollar rises and falls.
It is essential to get to grips with the fundamentals of foreign exchange. A strong U.S. dollar is great for importers, whereas a weak U.S. dollar is helpful for exporters.
Key payment decisions
You’ll need to decide if you’re going to charge for your goods in US dollars or the foreign currency where they’re being sent. Your customers will also be interested in getting the best possible exchange rate on their purchases.
Comerica has a number of funding options for exporters. The volume of daily global FX is larger than the combined value of worldwide equity, debt and other markets – at over $1 trillion!
Comerica Foreign Exchange Services can help you get your business banking accounts set up to handle foreign exchange payments. They’re also on hand to help you manage them, providing assistance with:
- What methods you’ll use to counteract FX movements.
- Assign these methods to each market you trade with.
- Note your targeted rate or goals for exchanging currencies.
- Follow through with your strategy and then review it as market conditions change.
It's important to minimize as much risk as possible to avoid losing money. The exchange rate will move between the time you sell and the time you have to receive payment. You’ll want to counteract these FX movements by entering financial contracts that protect against expected or unexpected fluctuations in currency exchange rates. This is known as hedging.
Online trading
If your business sells online, it means you’re open 24/7. It’s important to have exchange rate information at your fingertips. We can provide this with Comerica eFX®. It’s a secure, online trading system that gives you convenient, round-the-clock access to the foreign exchange market. You’ll have the flexibility to control trades, administer payments and create and download customized reports. Our FX Resources also include educational foreign exchange information and useful links.
Forward contracts
This means locking in a fixed exchange rate and settling at a future point in time is a way to hedge your FX exposure. Forward contracts can be used for any expiry date within one year and with any amount of foreign currency.
Summary
Markets don’t always stay the same – trade, relationships, politics, technology and businesses change. Make sure you’re constantly reviewing your foreign exchange strategy to give your business the best chance of successfully managing U.S. dollar fluctuations.
We can help with our foreign exchange services. An FX professional will work with you to go over your strategy to ensure it fits your company’s resources and appetite for risk.
Next steps
- Our Foreign Exchange Services can help you manage your FX payments.
- Comerica eFX® is our secure, online trading system with 24-hour access to the foreign exchange market.
- Talk to us about our small business accounts and how they can be set up for FX payments.
