# Small business strategies for foreign exchange Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2020-11-12 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: Top Strategies for Managing Foreign Exchange Risks Meta Description: Learn how to manage translation, transaction, and economic risks while saving money on international payments with iCompareFX - your trusted FX specialist. URL: https://financedigest.com/small-business-strategies-for-foreign-exchangehtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/untitled-design-26-1736838730366-compressed.jpg) _By **Gavan Smythe,** Managing Director,_ [_iCompareFX_](https://icomparefx.com/) The foreign exchange market is one of the largest in the world. Transactions take place in many different forms, 24 hours a day, through different channels all over the world. While the FX market is becoming more accessible to smaller and medium-sized businesses, most often enter the market blindly. Not only is this not needed, but it usually means eye-watering fees are paid for even the smallest of transactions. **The top three foreign exchange risks** There are several key risks connected with foreign exchange, no matter what [size a business](https://www.financedigest.com/covid-19-is-impacting-the-high-speed-steel-market-size-business-revenue-forecast-leading-competitors-and-growth-trends-2031.html "COVID-19 Is Impacting The High Speed Steel Market | Size, Business Revenue Forecast, Leading Competitors And Growth Trends 2031") is with three of the most noteworthy being: - translation risk - transaction risk - [economic risk](https://www.financedigest.com/economic-growth-risks-jolt-inflation-obsessed-markets.html "Economic growth risks jolt inflation-obsessed markets") These have a [big impact](https://www.financedigest.com/analysis-financial-literacy-or-luck-the-year-small-time-traders-made-a-big-impact.html "Analysis-Financial literacy or luck? The year small-time traders made a big impact") on commercial margins and are particularly risky for smaller businesses as their banks are less likely to offer currency hedging solutions. Translation risks occur as [businesses with international dealings translate their international assets and liabilities as well as financial statements from foreign](https://www.financedigest.com/foreign-business-travel-missing-ingredient-for-irish-hotel-recovery-dalata.html "Foreign business travel missing ingredient for Irish hotel recovery – Dalata") currencies to local currencies. This translation exposes them to foreign exchange risk, given that exchange rates remain prone to ongoing fluctuations. Transaction risks are due to fluctuations in exchange rates from the payment date to the settlement date, which exposes [businesses to further potential](https://www.financedigest.com/the-real-potential-of-web-3-0-and-blockchain-for-business.html "The Real Potential of Web 3.0 and Blockchain for Business") expenses. Any unexpected fluctuations in exchange [rates expose businesses](https://www.financedigest.com/albumin-market-in-depth-analysis-business-strategies-and-growth-rate.html "Albumin Market In-depth Analysis, Business Strategies, and Growth Rate") to economic risk. If a [company has invested](https://www.financedigest.com/more-companies-investing-heavily-in-business-services-software.html "More Companies Investing Heavily In Business Services Software") in international projects, it will also need to consider contingency risk too. High upfront fees for making international payments are another issue. Unfortunately, costs are concealed and immersed in the exchange rates offered, making it challenging for [small businesses](https://www.financedigest.com/small-businesses-run-out-of-cash-before-they-run-out-of-potential.html "Small businesses run out of cash before they run out of potential") to understand exactly how much they are being charged. Here, are three key strategies SMEs can use to balance these risks and [save money](https://www.financedigest.com/working-from-home-heres-how-you-can-save-money-on-your-auto-insurance.html "Working From Home? Here’s How You Can Save Money on Your Auto Insurance") on their foreign currency exchange: **1\. Strike the best deal** Most [banks don’t](https://www.financedigest.com/dont-play-second-fiddle-how-disruptor-banks-can-leverage-music-and-audio.html "Don’t Play Second Fiddle: How Disruptor Banks Can Leverage Music and Audio") commonly offer a variety of financial payment options or stable payment technology that FX specialists do. In fact, when it comes to [traditional bank](https://www.financedigest.com/digital-banking-traditional-banks-vs-fintech-providers.html "Digital banking: Traditional banks vs. fintech providers") transfers, there is often a lack of transparency or power over when a transfer occurs meaning most businesses end up accepting whatever the exchange rate is at the time. Therefore, businesses should think about working with money transfer [companies](https://www.financedigest.com/keeping-an-eye-on-company-purse-strings-where-do-businesses-go-wrong.html "Keeping an eye on company purse strings – where do businesses go wrong?") with business account managers and FX experts. There are a few ways SMEs can organise their preferred exchange rates with an FX specialist. One is to negotiate the FX margin on the exchange rate [offered based on the size of the transfer and / or based on the size of the future](https://www.financedigest.com/surgical-equipment-market-high-trend-opportunities-offers-future-business-growth-by-2030.html "Surgical Equipment Market High Trend Opportunities Offers Future Business Growth by 2030") volume of currency exchange and transfers. During discussions, [businesses can ask their foreign exchange partners if they provide the option to buy the currency at a set amount in the future](https://www.financedigest.com/how-to-implement-ethical-employee-productivity-monitoring-for-future-business-growth.html "How to implement ethical employee productivity monitoring for future business growth"), which is known as a forward exchange contract. Buying at the forward rate allows companies to handle their risk of [currency exchange](https://www.financedigest.com/currency-exchange-how-to-find-the-best-rates.html "Currency Exchange: How to Find the Best Rates") rate fluctuation more precisely. Remember what is best for each unique company will vary. These all seem like beneficial options, but to guarantee businesses make the right decisions, they must find the best partner to work with. It is not just about having the relevant expertise either. FX specialists should also be willing to take the time to work out which [risk management](https://www.financedigest.com/risk-management-redefined-navigating-post-covid-disruption.html "Risk Management redefined: navigating post-COVID disruption") tools are most suited to their customers’ industry. **2\. Go local** ![Gavan Smythe](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/gavan-smythe-profile-picture-2020-1-450x600-1736838730246-compressed.jpg) Gavan Smythe Banking like a local, decreases the FX costs that [clients may need to absorb when paying](https://www.financedigest.com/impact-com-closes-2021-with-new-google-pay-integration-150m-in-funding-and-51-increase-in-clients-yoy.html "impact.com closes 2021 with new Google Pay integration, 0M in funding and 51% increase in clients YoY") a company. Eradicating foreign exchange fees for clients could, in turn, make a [business more attractive to new prospects in other foreign markets](https://www.financedigest.com/lane-change-assist-systems-market-overview-business-growth-development-factors-application-and-future-prospects.html "Lane Change Assist Systems Market Overview – Business Growth, Development Factors, Application And Future Prospects"). When thinking about money from a localised perspective, be aware that political instability, economic downturn, and other major global changes like the [COVID-19 pandemic shake up global currency markets](https://www.financedigest.com/outbreak-of-the-covid-19-pandemic-is-expected-to-severely-affect-the-global-packaging-and-labelling-services-market.html "Outbreak of The COVID-19 Pandemic is Expected To Severely Affect The Global Packaging And Labelling Services Market "). Partnering with a money transfer company that offers multicurrency accounts is a good [way to prepare for possible circumstances outside of a business’s](https://www.financedigest.com/five-ways-businesses-can-prepare-themselves-for-the-digital-economy-be-kaler-pilgrim.html "Five ways businesses can prepare themselves for the digital economy – Be Kaler Pilgrim") control. It is often free to collect and hold money from international customers or marketplaces, which means [businesses could save on marketplace FX transfer fees](https://www.financedigest.com/how-to-budget-for-legal-fees-in-your-business.html "How to Budget for Legal Fees in Your Business") and take advantage of more substantial exchange rates at a future date. Banks don’t always have the most expedient exchange rates, but a foreign currency account located in a foreign [market gives the option of keeping](https://www.financedigest.com/uk-housing-market-keeps-momentum-but-slowdown-ahead-halifax.html "UK housing market keeps momentum but slowdown ahead: Halifax") money in the currency of the transaction until it is advantageous to convert it. Another way to alleviate possible risks is through hedging, which offsets [money fluctuations in foreign markets](https://www.financedigest.com/frothy-stock-market-valuations-a-dash-for-cash-and-digital-money-all-on-bank-of-englands-risk-radar.html "Frothy stock market valuations, a dash for cash and digital money – all on Bank of England’s risk radar"). However, hedging rarely results in company profits, so it’s more practical to think of it as a scheme to use for primarily hindering losses. **3\. Timing is everything** When it comes to foreign exchange, there are key windows where FX profitability can go up or down, depending on daily, weekly, and monthly trends. Keep this in mind, as it’s useful to research and check which times might be more appropriate for [business money](https://www.financedigest.com/how-cloud-computing-saves-businesses-money.html "How cloud computing saves businesses money") transfers and, equally if there are ones which should be avoided. For example, [market volumes and prices](https://www.financedigest.com/markets-pricing-some-geopolitics-but-risk-premia-can-grow-further-goldman.html "Markets pricing some geopolitics, but risk premia can grow further -Goldman") are unpredictable first thing in the morning. So, it might be better to forestall doing any foreign exchange transactions during these riskier periods. Some transnational currency transfer businesses do not provide weekend money exchanges and transfers when the foreign [exchange markets](https://www.financedigest.com/the-health-information-exchange-market-to-grow-on-a-satisfactory-note.html "The Health Information Exchange Market to grow on a satisfactory note") are closed. The ones that do, often raise their fees to prevent their [risk exposure to closed FX markets](https://www.financedigest.com/bank-of-england-says-it-will-unwind-bond-market-intervention-once-risks-have-subsided.html "Bank of England says it will unwind bond market intervention once risks have subsided"). For example, if a business desires to [pay its foreign suppliers on a Saturday their FX company may expand the exchange rate margin offered](https://www.financedigest.com/uk-trial-lawyers-to-end-strike-after-accepting-government-pay-offer.html "UK trial lawyers to end strike after accepting government pay offer") to ease the potential currency fluctuation risk for booking a trade when the market opens. SMEs that want to [save money](https://www.financedigest.com/5-saas-tools-to-help-your-company-business-save-money-in-2022.html "5 SaaS Tools To Help Your Company/Business Save Money in 2022") on their foreign exchange need to understand their current situation and risks and make them a priority. They should be [sensitive to market](https://www.financedigest.com/pressure-sensitive-tapes-market-to-register-substantial-expansion-by-2019-2027.html "Pressure Sensitive Tapes Market to Register Substantial Expansion by 2019-2027") fluctuations, and research money transfer providers that suit their requirements. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---