Foreign Exchange Risks

Foreign currency exchange brokerage, like other financial transactions, has its own set of risks. The risk in currency exchange is that the transactions will directly be affected by fluctuations in the currency exchange rates of currencies.

Foreign currency exchange risks are manageable through currency exchange brokers who can analyse the market and advise you when to make exchanges that can benefit you. Currency brokers also have several other tools, benefits and services that can help minimise the risk of currency exchange transactions. But keep in mind, while forex brokers can help you analyse the market and minimise risks, another risk worth looking at is the status of the forex company you’re dealing with. In the event that the broker files for bankruptcy, your money is at great risk, so make sure you check the financial status and background of the company you sign with before you make any deals.

Some banks offer special currency accounts such as HSBC, Barclays, and Lloyds’ currency account which lets you transfer and hold you money under any currency. It also allows you to easily manage deposits from forex companies. Check out their services through the links below:

• HSBC
• Lloyds Bank
• Barclays

Protecting Yourself Against Currency Movements

Dealing with currency movements is part of an expat’s normal routine. Over time there has been a lot of our compatriot skim down by harsh currency fluctuations such as in the a few years back in Russia or with the fall of the ruble  but this can work both way and sometime getting paid in a strong host country currency can work your way too.

Since transacting amid market fluctuations costs money, most expats seek the services of financial specialists and currency brokers in transferring funds to pay off mortgages, pensions and insurance plans back home. These professional services lessen the transaction costs as well as the hassles brought by the intricacies of market fluctuations. Nevertheless, it is imperative for expats to slowly adapt to erratic market changes and to protect themselves against currency fluctuations.

Here are some tools that expats may use against currency movements:

• Spot Contracts 

This financial tool enables expats to purchase currencies on the spot or on the day’s rate through a market order. Future transactions that are expected to expire on the current month are also categorized under spot trades.

Bart Chilton, Commissioner at the Commodity Futures Trading Commission (CFTC) shared how spot contracts work: "Rolling spot transactions are borne out of a desire to offer retail investors the ability to speculate on exchange rates, and what we've been telling people is that we interpret the rolling spot transactions with eligible contract participants (ECP) as swaps, so they should be treated accordingly.”

• Forward Contracts 

This type of contract is applicable for expats who own businesses and real estate properties and may be purchased with the aid of a currency broker. Essentially, it is a non-standardized contract which is presently negotiated between two parties who are either buying or selling an asset based on a future price.

Mark Bodega, a HiFX marketing director explains forward contracts: “Essentially there are three types of people who use forward contracts: those who want protection from exchange rate risk; those who have a firm belief the exchange rate will move against them and those who just want to get it done.” According to him, the first type consists the 90% of the buyers since it provides them peace of mind amid exchange rate risk.

The internet offers a wide array of firms and even contact number of currency brokers.

UK-based HiFX is a leading currency brokerage that was established in 1998. It primarily services expats who wish to settle payments for their properties, mortgage, and pensions abroad.

Smart Currency Exchange, another foreign-exchange brokerage, provides assistance to expats in transferring money from one country to another. Through its better-than-bank currency exchange rates, Smart Currency Exchange lessens an expat’s risk of paying high transaction costs related to price fluctuations.

Corporate: commonly occurring foreign currency transactions include

• Revenue and accounts receivable arising from export sales
• Expenses and accounts payable arising from the purchases of imported goods
• Intercompany transactions (see FX 7 for information on intercompany foreign currency transactions)
• Investments in debt and equity securities denominated in a foreign currency
• Foreign currency denominated loans from financial institutions
• Foreign bank accounts
• Taxes imposed by foreign tax jurisdictions

Personal: commonly occurring foreign currency transactions include

• Remittance to home country
• Salary currency transfer
• Buying property in home country while abroad, or buying property abroad
• Investments abroad