Important Details

Mitigating Currency Risk in
International Trade

International Banking Newsletter Archive

International Banking from Zions Bank
 

As the world marketplace continues to grow and evolve, every international business must be ready for the expanding opportunities and inherent risks associated with transacting business around the globe. For many businesses, one of the most significant areas of potential risk is foreign exchange.

“Any time you deal with foreign exchange, there’s a risk component because of the exchange rates moving constantly throughout the day,” says Scott Stone, senior vice president and foreign exchange manager for Zions Bank. “It’s a 24-hour market, unlike the stock market.”

Stone helps businesses mitigate their currency risk when doing business overseas, from simple wire transfers to more complex currency hedging transactions. The goal of Zions Bank’s foreign exchange group is to help businesses:

  • Buy and sell products/services in terms familiar to suppliers/customers
  • Protect profit margins and mitigate risk from currency market fluctuations
  • Increase sales and new market penetration
  • Build global relationships with suppliers/customers
  • Better manage their financial statement/payment flow

A key weapon in the fight against risk is the forward foreign exchange contract, which allows clients to secure an exchange rate today for settlement at a future date. Take, for example, the business owner who has negotiated the purchase of a large piece of equipment from a European supplier for Euro 1 million.

He’s negotiated the price, but payment is not due for another 90 days. In that three-month window, the value of the Euro may fluctuate greatly, which has the potential to negatively impact the business owner’s bottom line.

That’s where the foreign exchange contract comes in, because it locks in the Euro 1 million at a set dollar amount for the next 90 days. “Now, the client doesn’t have to worry about risk in the market,” Stone explains. “He has a contract and he will get a certain exchange rate.”

Stone also works with clients to develop strategies for pricing products in foreign currency for sale in international markets. “Companies are accustomed to selling in U.S. dollars overseas,” Stone says. “It’s an acceptable strategy because there’s no risk, but it’s difficult to expand overseas when you are pricing products in U.S. dollars because it’s just not as advantageous for foreign buyers.”
In addition to offering these risk-management strategies, Zions Bank can send or receive foreign currency wire transfers to more 30 countries worldwide and offers currency accounts, drafts, check collection and bank notes.

If you are interested in receiving more information about Zions Bank’s foreign exchange services, including a daily email update with rates and market commentary, please contact Scott Stone at scott.stone@zionsbank.com.

The information presented is presented for general informational purposes only and does not constitute tax, legal, investment or business advice. For further information, terms or conditions for Zions Bank international services please visit www.zionsbank.com.

 

The information presented is presented for general informational purposes only and does not constitute tax, legal, investment or business advice. For further information, terms or conditions for Zions Bank international services please visit www.zionsbank.com.

This page was last modified on Thu Apr 24 15:00:45 MDT 2014