The risk of adverse movements in exchange rates is something that is faced by everyone doing business in international markets.

Not managed correctly, foreign exchange risk can have a real impact on the bottom line of an export business.

There are, however, a range of products that can help manage this risk, including:

  • foreign exchange contracts (or forward currency contracts) where the bank agrees to buy or sell a certain amount in a foreign currency at a fixed rate on a particular date. This allows the exchange rate to be known that will apply to future payments from overseas buyer.
  • foreign currency options that give the right, but not the obligation, to sell a nominated foreign currency to a bank at a fixed exchange rate, either on a particular date or during a defined period of time. This means a lower limit on the amount of Australian dollars that will be received when an export contract is signed can be set, in exchange for payment in foreign currency from the buyer.
  • foreign bill negotiations which is an advance from a bank for the amount and currency that will be received from an overseas buyer. This can help to manage foreign exchange risk and enhance cash flow.
  • foreign currency accounts allow receipt of contract payments in a foreign currency and use of those funds to pay invoices in the same currency. This helps reduce currency risk through not having to convert funds to and from Australian dollars.
  • foreign currency loans, which are simply a bank loan in the same currency as the export contract. These allow exchange rate risk to be managed, by being able to use the funds as working capital to fulfill export orders before you receive payment.