Foreign Exchange Tips: Selecting the Right Service Provider for Your Business (2024)

In our last post, we explored why business customers should evaluate the optional services currency exchange brokers and money transfer providers offer. Their "Secret Menu" offerings if you will. This is the last post in this series, however we welcome your input on how we can update this content to help you understand the cross-border money transfer process better.

Don't work with a foreign exchange provider that is stuck in rigid processes

One common problem that stands in the way of businesses seeking to ensure they’re managing currency risk effectively and securing the best value from transactions is that their foreign exchange provider doesn’t offer sufficiently flexible terms.

This can be a particular issue for companies for which a hedging strategy might be appropriate, but which are put off by the need to make payments in advance or provide margin for their forward positions.

Some foreign exchange providers are able to offer more flexible credit terms than others in such situations. Firms like XE need to comply with regulatory standards, however there is some room for flexibility while complying with these standards.

Without any flexibility, a hedging strategy may be considered out of reach for some businesses, even if putting such a strategy in place would substantially reduce the company’s exposure to foreign currency risk. In other cases, businesses may be able to take on hedging positions, but not on the terms that would suit their individual circ*mstances best.

Consider other types of flexibility too. For example, does your foreign exchange provider offer access to different types of payment services?

This may be important as you seek to make payments quickly to different parties in different markets, while ensuring you have as long as possible to complete the transaction. Look for a provider that is able to configure their service to meet your particular needs.

In the end, the key here is to give your business as much room to manoeuvre as possible. Your approach to foreign exchange, whether day-to-day transactions or longer-term risk management, should be determined by business needs, rather than defined by the limitations and inflexibility of your foreign exchange provider. Talk to different providers about service options they are able to offer.

You'd better shop around

The lesson of this guide is that focusing on foreign exchange can deliver a broad range of benefits, from enhanced value to better risk management. The key to securing those benefits is to work with a foreign exchange provider that understands your needs and is able to help you to achieve your goals. It may be that your current foreign exchange provider is capable of doing that, but until you review what else is available, you won’t know whether it is possible to do better.

Not shopping around for foreign exchange services is therefore a huge mistake. You may be denied better rates, miss out on service opportunities you didn’t know existed, and fall short of the strategic approach to foreign exchange required if policies and practices are to reflect the realities of your trading environment.

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Don’t assume your bank will deliver the level and quality of service you need. It’s easy to stay with your bank– and you certainly want the security of dealing with a trusted provider – but it may not be able to offer the depth and breadth of currency services on offer from a specialist provider which does nothing but foreign exchange.

This is not to suggest you should fall for rival providers’ hype. If a rate sounds too good to be true, for example, it almost certainly is. Also, be skeptical about any provider that encourages you to speculate in the currency markets or to persuade you that it can help you second-guess exchange rate movements.

It might sound counter-intuitive, but the ideal hedging position is one that doesn’t deliver a benefit – in other words, you take out insurance against the worst, but hope for the best that the currency markets don’t move against you. In reality, even a successful hedge only buys you some time.

What you need is a provider that takes the time to understand your business’s specific needs, rather than offering a generic service. The competitiveness of the exchange rates it offers will, of course, be a factor in your search, but this shouldn’t be the only consideration. Rather, you need a provider able to develop a bespoke solution that meets all your foreign exchange needs – including helping you to manage future risk more effectively.

Don’t settle for anything less.

Please Note:

The information, materials, accompanying literature and documentation available on our internet site is for information purposes only and is not intended as a solicitation for funds or a recommendation to trade. XE, its officers, employees and representatives accept no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the above information.

While we take reasonable care to keep the information on the website accurate and up to date, there may be occasions when this is not possible. Case Studies and articles are not intended to predict future moves in exchange rates or constitute advice.

XE makes no representations, warranties, or assurances as to the accuracy or completeness of any information derived from third party sources. If you are in any doubt as to the suitability of any foreign exchange product that you are intending to purchase from XE, we recommend that you seek independent financial advice first.

For more information about XE, please click here: Regulatory Information