Commercial FX Education Center
The only site that educates companies to what the banks
and commercial FX providers don't tell you
Many companies that make international payments
have a lack of understanding to how they are losing money with every payment they make. Our goal is to give you
the knowledge to limit transaction exposure and negotiate effectively so the different misconceptions below have been segmented
into exporters, importers, hedging, and general myths to help when negotiating the best value for your company.
Many U.S. companies have gross misconceptions regarding
the foreign currency exchange industry and the amount of profit that is lost through making and receiving international payments.
Sadly, due to the lack of education, most of these companies are hurting their bottom line much more than they really
know. This site was created to help international companies understand and participate in controlling their foreign
currency exchanges which can either protect or even create additional profits that are currently being untapped. Our
goal is to have all companies realize the significant value of understanding how proper attention to their international payments
can lower risk and save money rather than having it siphoned off your profit margin.
In addition, except for the section on exporters,
this site is focused on the risks in relation to importing though all aspects of this site should be examined by anyone that
deals with international payments. A large number of US exporters, unless out of necessity, will not invoice in local
currencies due to any one or a combination of the following primary reasons. These reasons include a basic lack of knowledge
regarding all the benefits, which can equate to a fear of the risk involved with the currency market, some also believe the
work involved is too much for an unknown ROI, and/or the actual decision maker in charge does not have a vested interest in
spending the time to educate themselves and make their company better. In other words I have seen it time after time
where the decision maker does their 9-5 job and doesn’t really care. They don’t see the ROI fast enough. They
don’t realize that if they would understand the benefits they may be able to create larger profit margins and expand
their market shares especially as the US Dollar continues to weaken.
Should you
be satisfied with your current level of service?
The
status quo unfortunately seems fine for most companies. They have the “if it’s not broke then don’t
fix it” attitude. Companies may be comfortable with their online system, the bank rep they have and maybe of what
they think they are getting relating to their spot rates. What else does the average company need, they have a good relationship
with the person that takes care of it for them? However, many owners and finance professionals have little
actual knowledge about how the commercial foreign currency industry works so they don’t really know what qualifies
as "good" or "bad" service. Due to the bank or provider’s lack of education and services offered
to these companies, the potential losses are up to 50% of a company’s importing costs since the summer of 2008
depending on a number of factors that must be assessed correctly.
One of the biggest
misconceptions is that US companies don’t believe they have risk because they are invoiced and pay in USD. I have a
client that imports $500K of products from Mexico every month, and in the last year they could have locked in and saved up
to 50% of their $6 million a year importing costs. What if they could have only saved 33%, is $2,000,000 worth a few minutes
of education? Ignorance is killing the average American company, especially those who think paying in USD is always a good
idea. How do you control the exchange rate if you are paying in USD? You can’t, but most have never known what controlling
the exchange rate even means, until now.
How do you get through to someone who feels satisfied with
their current level of service because of a relationship? If a mechanic is your best friend but rips you
off, is that a good relationship? What about the nice loan officer that over charged you by $1000s? What about
the bank who doesn’t give you any analysis on what you actually need or doesn’t alert you to indicators and price
fluctuations? How about the FX provider that never educates you to moves in the market due to the fact that the provider
does not understand the fundamentals to why the market is moving in the first place. I can almost guarantee they have never
prepared a FX cost budget for you or have talked to you about your Profit Price Points because they don’t know what
those are. Every company needs to be conscious of these things constantly. What about the bank that is not helping you
to understand your transaction exposures? These are basic and elementary aspects to any good FX consultant. Most companies
can’t afford the time or money to have a person on staff so they either need to outsource for it or find the right people
to do it as a cost of doing business. So that means, the banks and providers need to give you these
services complimentary for all the money they are making off of you per wire transaction. The problem is most banks and
providers don’t offer these services to small and medium-sized clients. They say they do but once you go through
this site start asking questions and see what level of service you are truly receiving. Is it enough to competently run your
business? The right service can save you $1000s, $100,000, or even millions depending on the size of the company.
Most banks give very little help to small
to medium-sized businesses. All they do is make a wire payment for you and charge you up to 3% or more. However, that 3% is
nothing, if you are not properly hedging your risk you are losing much more. Most major currencies have strengthened
against the US Dollar by at least 19% in the last year at their high points and that doesn’t include the 3% the bank
is charging. In the commercial foreign exchange industry we do not speculate on pricing but competency and attention
go a long way to help you make educated decisions. After reading through this site you will have a true understanding
of what type of bank or FX provider will suit your needs. You may only need an initial analysis or much more but either way
this site will lay the ground work for what you will need to properly protect against excessive margins and market volatility.
Commercial
FX Myths
EXPORTER Myth: By invoicing international clients in U.S. Dollars I am protecting
my company’s profit from volatility there by making more money than invoicing in the client’s local currency.
IMPORTER Myth: By paying
my international suppliers in U.S. Dollars I save more money as I do not have to deal with the cost and volatility of the
exchanging to foreign currencies.
HEDGING Myth:
Hedging your risk on international payments is just like gambling.
Myth
1: "The Murky World of Banking"- You find out what a provider is charging
you by asking what the exchange rate is for your foreign currency.
Myth 2: "Margin is King"- Your business has to pay up to 2% or more in margin to providers and banks to make
or receive payments.
Myth 3: "Best Price, Best Deal"- The provider with the lowest
currency exchange margin & fees will save your business the most money.
