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Often managers of business's have a myriad of functions, roles and tasks to fulfill in the course of a business day. Monitoring the exchange rates for a business is therefore not always easy and the execution of a foreign exchange deal by a company at an advantageous rate can be missed. Even a few minutes can make a difference in the currency markets.
Put currency exchange rates into perspective and ask a broker to help your company achieve what oyu feel are acceptable exchange rates. Usually companies can choose to be notified when the currency achieves a predetermined exchange rate or authorize the dealer to make the purchase/sale at the price you have selected.
Forex currency trading - Forward Contracts.
Whenever a company has a foreign payable or receivable invoice from a foreign supplier that has terms such as 30, 60, 90 days or more, there is a possibility that the price of that foreign currency will change during the term. The imported goods could have been valued when the British Pound to Dollar rate was say 1.6800. If the actual exchange rate for British Pound to Dollar rate was 1.6600, 30 days later this flucuation would have a significant effect on the true cost of the imported goods.
Eliminate the risk of fluctuating exchange rates with a forward contract. Forward contracts lock-in an exchange rate today for a transaction that will take place some time in the future. Companies that have to settle foreign payables or receivables in the future use forward contracts to manage foreign exchange risk.
A forward contract exchange rate can be fixed for any length of time, up to about three years ahead or two days forward. Mostly commonly smaller companies use forward contracts for shorter periods. Larger companies utilise forward contracts for longer periods and there are more sophisticated types of forward contracts that the dealer can supply. These Forex forward contracts allow hedging against currency fluctuations and offer mechanisisms to take advantage of any rises in the exchange rates.
If a company isn't sure how much their foreign payents are, or when they are due The Broker may be able to offer a 'Time Option Forward Contract'. A Forward Contract is agreed as normal but a 'Time Option Forward Contract' has the added benefit of allowing funds to be drawn down after an agreed date within the contract period.
To secure a 'Forward Contract' to pay foreign suppliers in local currencies the Forecx Broker may require a deposit (sometimes 5%). The balance of the Forex contract is then payable prior to the expiry of the contract.
Pro's: Forward contracts eliminate the risk of exchange rates moving against you. Forward contracts allow companies to manage their finances more efficiently and effectively through fixed cost budgetting. You can have an element of flexibilty built in to a Forward foreign exchange contract with a 'Time Option'
Con's: A forward contract exchange rate is fixed so you can not partake in favorable movements in the exchange rate. A security deposit is generally required to secure the forward contract.
Forex currency trading advice, analysis and further reading can be found at Forex trading and also try Forex foreign exchange for market info. The forex market is complex and brokers should be happy to answer your questions. Experienced forex traders can supply money transfer quotes and help you to achieve the best exchange rates. For foreign exchange and currency trading, traders can talk to you about the forex markets. Further reading and forex market advice at Forex market support, also try clicking the money transfer button above to find a broker for an exchange rate quote.