Currency risk, in simple terms, is the potential loss from fluctuating exchange rates. If you’re a business with foreign-currency investments, you’re likely already familiar with the concept of currency risk. If you’re an individual who performs frequent international transfers or makes payments in foreign currency, you’re also at possible risk to lose money on exchange rate fluctuations. If any of that applies to you, here are four tips to minimise your currency risk.
Tip 1: Double and triple-check that all the information you provide is accurate.
Sure, this may seem like common sense, but issues born of human error occur every single day, the results of which are incurring extra fees and delaying payments. By simply taking a few minutes to review all relevant information—names, account numbers, and currency pair, among other things—you can save yourself quite a bit of frustration and potential loss.
Tip 2: Use a modern, intuitive platform.
Gone are the days that you need to visit a bank or broker’s office in order to perform an international transfer. Now you can simply sit down at your computer, go online, and use a user-friendly digital platform like Interactive FX to exchange currency and send money overseas.
Tip 3: Make sure you understand all the costs involved.
When making a transfer, you should always have the interbank exchange rate (the rate at which banks are trading foreign currencies with each other) on-hand so that you can compare the actual rate with the exchange rate that your provider gives you. These rates are often inflated with an exchange fee, added in on top of administrative and possible delivery fees. If you process a transfer with a provider that is not transparent on their fees and rates, you’ll likely end up wasting time and money.
Tip 4: Ensure all parties to your transactions are legitimate.
This is especially relevant advice for businesses. If you’re dealing with a foreign entity, do your research to confirm that everyone involved is legitimate, honest, and transparent. This includes not only trading partners, but your transfer provider as well. It only takes a few minutes to confirm that they are compliant with the international code against fraud and money-laundering. International money transfers are subject to strict anti-money laundering (AML) protocols that can cause considerable delays and even the cancellation of transactions.
It should go without saying that any type of investment comes with some amount of risk, and the foreign exchange market is no different. However, by following these simple (and often overlooked) tips, you can minimise currency risk and ultimately save time and money.