Let’s assume you are a US company and invoice in EURO. There are a number of ways to make sure you would not lose too much money.
- You could put some buffer in your pricing for currency fluctuations.
- You can borrow the same amount in the foreign currency. Then, it would not matter what happens. If the EURO goes up, you will get more dollars but your loan has also increased and vice versa.
- You can “insure” your currency. Let say your invoice of 200,000 EURO will mature on July 16. You can go to the bank and make a deal.
- You buy an option for the exchange rate of 200,000 EURO and the bank will give you a rate. At July 16, if the EURO has gone down in value, you use your option to convert the EURO to US$. If the EURO has increased in value, you just convert the currency and keep the difference
- You can buy a term. That is the same as the option. The only difference is that you have to convert the currency at the specified price and fulfill the contract.
I am sure that your bank will be more than willing to discuss the different options with you.
In our book “Export & Import – Winning in the Global Marketplace” ISBN 978-0-9681148-1-0 those topics are covered in depth
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