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Currency Risk: The Basics

Whenever you need to send or receive foreign currency in the future, you will have a "Currency Risk" that you need to manage.

The foreign currency you need to pay in the future may cost you more of your domestic currency than it does today.

If you are receiving foreign currency in the future, it may be worth less of your domestic currency than it is today.

To protect against these risks, you can fix the exchange rate today, but not actually use or pay for the foreign currency until you need it. This is called "Forward Buying".

Here are some specific examples of when to consider "Forward Buying":

Paying for a high value item

Mr Naysmith agreed to purchase a Sailing Boat from a French Broker in August of last year. The boat was surveyed and the seller agreed to carry out a few repairs before Mr Naysmith paid for the boat. The repairs were due to be completed by November.

Mr Naysmith registered with FTT and paid for the deposit to the broker via our online platform. He also wisely booked a Forward contract for the balance. If he had waited until November, he would have had to pay an additional £17,000 for the boat.back to the top

Invoicing a Customer in foreign currency

Peterson Consulting based in London delivered a consulting engagement for a well known US-based oil company. They invoiced the company for 125,000 US Dollars but didn't expect to receive the money for 30 days. They booked a Forward contract on our system to sell the US Dollars and buy GBP in a one month's time. One month later the US Dollars would have been worth 15% less. They saved over £10,000.back to the top

Being paid salary in foreign currency

Ms Cheney accepted a contract to work in Paris for a leading legal firm for 6 months, being paid 20,000 Euros per month. She knew she would need to send the majority of the funds back to the US at the end of her contract.

She went online and booked a Forward contract to convert 60,000 Euros into 96,000 US Dollars. If she had waited and booked a deal 6 months later she would have only received 75,600 US Dollars. She saved 20,000 US Dollars.back to the top

Agreeing to buy stock in a foreign currency

JNR Electronics is a major importer of electrical items. They had agreed to buy a large consignment of goods from China, totalling 215,000 US Dollars. They sent an initial 30% deposit via our online system and booked a Forward Contract for the 70% balance. Had they waited until the invoice was due, 3 months later, they would have paid £34,000 more for the same goods.back to the top