Forward Contract Against An Export
What do You need to Know About A Forward Contract Against An Export?
The forward contract against an export is basically an agreement between the exporter and the importer to exchange a certain amount of the exporter’s currency for the importer’s currency or vice versa. This usually done on the payment date for when the export. Due and using the currency exchange rate at that time when the contract of sale made.
Purpose of the Forward Contract
The purpose of the forward contract is to provide for a hedge for both the exporter and the importer against the fluctuations risk of the currency exchange rates that could occur in between the time that the contract for sale is made and at that time when the payment will be rendered. This is usually done through the forward contract and the contract will specify the sales price, depending on how much the importer’s currency will be required in order to satisfy the cost of sale base on the currency of the exporter. Basically, the importer must pay for exports using currency exchange rate at the time when the forward contract was made and not based on the currency at the time of payment.
Paying Exporters in Currency Exchange
Importance of the Forward Exchange Contract
The forward exchange contract is very important. Without this, both parties will risk the possibility of suffering for financial loss as a result of the significant change of the currency exchange rate. That could possibly take place between the exporter and importer’s respective currencies in between the time. That they settle on a certain price until the delivery of the goods and when the payment is made.
For instance, if the currency of the importer will drop 20 percent in value. Against the currency of the exporter within the interim that took place in between the sale contract and payment. The importer will have no choice but to pay for 20 percent more on the goods purchased. Which more than what he or she should pay at that time when the contract of sale made?
Helps Both Parties Against Risk
The main advantage of the forward exchange contract is to assist both the exporter and importer in risk management. The certainty that is provided on the contract can also help the company to be able to project enough cash flow for such investment. Including other aspects of the business planning.
But just like with anything, there is also a disadvantage that comes with the forward contract. And that’s because none of the party could profit in the event of a significant currency exchange shift, which will be in their favour. As such, there are times when the parties who are involved in making the forward contract will only make the exchange contract. For only a certain part of the total sales price and this leaves open any possibility of profiting out of the changing of the exchange rates in their favour.
Paying Exporters in a Different Currency
Forward contracts prepared for at least a year ahead and usually created by the financial institution of the exporter.
If you are in a business and need to buy or sell due to using export services overseas then you should consider forward contract currency when exporting your goods. Using a foreign exchange provider to protect your business interests. By not using a foreign exchange provider it could mean unpredictable profit margins, exposure to heavy loss in trading resulting in company loss and stress.
Paying in a Different Currency
Compare money transfer comparison services utilise the experience from small exporting businesses to large exporters, We strive to eliminate these problems by keeping their finger on the pulse, with every fluctuation there is a reason and the corporate brokers are always on hand to provide you with reasons for these fluctuations.
Corporate brokers then provide strategies to protect you against any loss that could incur. Which finally eliminates the stress you were under allowing you to focus on your more pressing issues e.g. YOUR BUSINESS AND PROFIT.
Export Foreign Exchange Rate
Exporting Goods then plan your currency rates at the same time – Receive foreign currency What do I do next?
Step 1. Opening a currency exchange account:
You need to complete, sign and return the “no obligation to trade” Terms and Conditions of Business. Together with two forms of certified identification such as copies of a utility bill, passport, driving licence etc. Upon receipt of these documents. Allocated a Personal Dealing Reference number. Which unique to you and your own Currency Broker who will look after your interests.
Step 2. Your dealing reference number:
As soon as we receive your completed documentation. Your account number allocated. This process can take less than an hour.
Step 3.You can now trade:
Please call for the best rates in the market. Trade Spot, Forward or place an order, it’s up to you.
Step 4. Pay Your Exporters in another Currency:
Pay your Exporters – Receive foreign currency payments as well as pay for your foreign exchange transactions by cheque, BACS, CHAPS or Online Banking. Your currency transferred to your designated account on the maturity date specified in your foreign exchange Contract. Please be aware that Foreign Exchange UK’s partners do not impose any charges for the services provided but foreign banks may charge to receive funds, contact your foreign bank to confirm or negotiate charges.
