How
do I secure not losing money on currency fluctuations?
A:
Lets assume you are a US company and invoice in French Franc. There are a number of ways to make sure you would not loose to much money.
You could put in some buffer in your pricing for currency fluctuations.
You can borrow the same amount in the foreign currency. Then it does not matter
what happens. If the French Franc goes up. You will get more dollars but
you lone has also increased and vice versa.
You can "insure" your currency. Let say your invoice of 200.000 French Franc
will mature July 16. You can then go to the bank and make a deal.
You buy an option for the exchange rate of 200.000 FF. I.e. the bank will give
you a rate. At July 16 if the FF has gone down in value, you use your option
to convert the FF to US$. If the FF has increased in value you just convert
the currency
You can buy a term. That is the same as the option. The only difference is
that you have too convert at the rate agreed upon with the bank
I
am sure that bank will be more than willing to discuss the different options
with you.
