THE term global village was coined in the 1960s by, the Canadian thinker, Marshall McLuhan in his book The Gutenburg Galaxy.
It is a term that has come to represent the state of the world in the 21st century. As a global village, the world is now considered a single community linked by telecommunications. It is clear that the world is now a smaller place than it was in years gone by and it is even more obvious that technology is the driving force behind this.
The internet has made it incredibly easy for businesses, big or small, to work on an international level. As any business owner will know, once you have decided to enter the international market, you will have to interact with the foreign exchange market, which can often prove to be an intimidating and complicated process. The most difficult part of this process is usually in choosing the right corporate/business foreign exchange service for your needs. This article has been put together to help you better understand what a foreign exchange service is, why your business or corporation needs one and, how choosing the right service can save you a lot money. So, let’s get started…
What is Foreign Exchange?
Let’s start simple, foreign exchange is the process of exchanging one currency for another. If we imagine that you want to exchange Euro for US Dollars, this would be referred to as a currency pair. As Euro is the currency you are exchanging, it is called the base currency. The US Dollar, in this scenario, is the currency you are exchanging for and is known as the quote currency.
The exchange rate is the value of the base currency for the purpose of conversion to the quote currency. We told you it was simple! Let’s keep going…
What is a Business Foreign Exchange Service?
Business foreign exchange service providers do just what you think. They allow your company to transfer and receive money in different currencies. Corporate foreign exchange services also allow you to set up a variety of payment systems. For example, if you want to sell a product internationally, it is more than likely that customers will want to pay for said product in their local currency. A business fx provider is the easiest way to set up the payment system to allow this to happen.
Why Does a Business Need a Foreign Exchange Service?
In addition to these payment systems, there are number of reasons why businesses need foreign exchange services. Before we get carried away with details, let’s remember what we are talking about here, after all, it is important. We are talking about the safekeeping of your small business or corporation. We are talking about the difference between building a successful company and becoming part of the statistic that 20% of new businesses fail during the first two years of being open.
When it comes to today’s global company, you would be hard pressed to find a business or corporation that is not vulnerable to currency risk. Risk managers are well aware of currency fluctuation and the risk it poses to their business. Currencies are constantly moving up and down in relation to one another and a corporate fx service can help you plan accordingly.
Ultimately, the reason a business needs a foreign exchange service is to safeguard their company by ensuring that they do not waste money unnecessarily as well as making sure they do not lose out on potential international customers. In order to further examine the reasons why a business needs a foreign exchange service, lets take a look at how such a service can save your business money…
How Can a Foreign Exchange Service Save Your Business Money?
One of first things you should consider when choosing a foreign exchange service is how much it will actually cost you to use their services. Fx services have different transaction fees, spreads in the exchange rate and delivery fees. It is important to find out the exact charges a potential provider applies to transactions before using their services. While it may seem obvious, looking for the providers who offer the smallest fx margins is always a great place to start as in the long run, it will save you you money.
This next factor is of equal importance when it comes choosing the right foreign exchange service for your business. Businesses have different needs and you should confirm two things before using a service. Firstly, you need to make sure that they can fulfill your individual business needs and secondly, you need to ensure that you are not overpaying by signing up to financial products that you simply don’t need.
As a small business entering the international market, you will more than likely need a multi-currency account. This is a payment system that allows you to receive payments in a variety of foreign currencies, which are then exchanged to the currency of your choice with the best possible rate. Another option within this accounts is to hold his money in the currency of the transaction until you know you want to exchange it. The main benefit of a multi-currency account is the fact that it allows you to both send and receive funds in a number of different currencies while avoiding an exchange between them. Once you have confirmed that the fx provider offers you a multi-currency account, make sure to check that its turnaround speed, transaction limits and supported currencies match your business needs.
Another way in which an fx service can save you money is by offering you access to FX hedging tools such as forward contracts or forwards. Forwards allow you to save or specify an amount, exchange rate, and a particular date for a currency exchange. You can in essence save this without making the exchange. This allows you to make a plan based on this rate, thus avoiding the possibility that the exchange rate changes before you have decided to go through with the transaction.
Furthermore, a number of corporate fx services offer you professional guidance for free on the best time to make a transaction and/or exchange currencies. The service provider’s experts will study the foreign exchange market and offer you personal advice based on the transaction in question. For example, if they predict a fluctuation in the market, they may suggest that you hold off on a transaction in order avoid risk and/or to get the best deal possible. In the future.
In conclusion, if you are managing a business that exists on the international market, it is in your interest to choose the best foreign exchange service for your business. In order to this, we highly recommend taking the aforementioned factors into account when deciding. Firstly, if an fx service meets the needs of your business and secondly, if it is the best available option in terms of pricing. We don’t need to remind how important this decision, after all, it will have an impact on your business dealings on a daily basis.