If you’re working with more than a single currency, you most likely know that any foreign exchange issues can lead to massive financial issues.
Sure, selling in other countries can be very fruitful, but things like foreign exchange issues can end up dampening your profits. Which is why it’s important to find a way to protect your business, and that’s where buying forward contracts comes into play.Why are there foreign exchange issues for companies?
Usually, a business will focus on working solely with the national currency, and there are less fluctuations in a situation like this.
But when you start adding more currencies into the mix, that’s where problems can arise. As we all know, currencies all fluctuate and if you are selling/buying a significant amount of merchandise in a currency that falls the next day, you will end up with financial losses.
That can become an issue if you mostly acquire raw materials or equipment only from other countries. You need to use their currency, which might end up being an issue if you overspend. Whether you choose to sell on the domestic market or anywhere else, you must be competitive. So that’s why the forward contract system is the better option.
You can see exactly how much capital your company has as risk (both the potential upside, and savings) directly on our dashboard
. How can you protect your company with forward contracts?
The main role of forward contracts is to help freeze the foreign exchange rate at a certain value for a specific duration.
It can be up to 1 years, or as little as you want.
The focus is to protect yourself from any currency exchange fluctuations, and these can appear randomly during the month or year. But if you buy forward contracts, these will help you stay away from massive financial losses.
They also help you budget with more certainty- knowing the rate ahead of time can extend your runway and increase company security.
This way, you get to lock the currency exchange rate for a year, and can still help you do business normally, without worrying that you will lose money- with that money still in your bank account!
Whether you like it or not, these things can end up being a problem.
That’s why the idea of buying forward contracts is ideal.
Not only do you get to avoid any currency exchange fluctuations, but you can actively plan any future transactions without worries as well.
It helps you protect your business in the long run, while making sure everything gets adapted to your own requirements. So, is it a good idea to buy forward contracts? Absolutely. You won’t have to worry about foreign exchange issues, and you can finally focus on business growth.
P.s You can also buy forwards directly through our partners at (transfertomorrow.com