Top 4 Mistakes Growing Businesses Make on Hedging Transactions
Running a business on the international market means operating across country borders and currencies—but you don’t have to be at the mercy of a fluctuating exchange rate. With such a high risk for coming in over budget, savvy growing businesses with an eye on the global stage compare their budgeted cashflow with market variables to guarantee a positive rate of return.
This practice is called currency management. Used effectively, this process ensures that international business projects do not spiral into expensive blunders due to fluctuating currency rates, hidden transfer fees, and more. Here are 4 common mistakes businesses make when it comes to hedging transactions:
- Inaction in the Face of Opportunity
First and foremost, a growing business must seize market opportunities as they occur and capitalize on favorable exchange rates. This nuanced process is made accessible by using a program like ABCM™’s hedging methodology workflow. This customizable workflow allows you to answer questions for you hedging practices without being a master or a financial wizard.
A business be prepared to describe how much they are willing to pay, the kinds of favorable derivatives they should use, the length of the term, as well as the exposed amount that they want to hedge. With ABCM™, business owners can completely customize their workflow while selecting the optimal premium limits, expiry term, hedged currency pair, derivative, and notational amount quickly and easily for maximum flexibility. With a comprehensive programming at your fingertips, next steps for your business become clear—no more passively waiting for the “right moment” to move forward.
- Locking Into a Fixed Hedging Methodology
Establishing the need for a currency management system means little if a growing company is not able to select the right tool for the job. Using a fixed hedging methodology on fluctuating market rates is not the path to success—in fact, it is the path to an obsolete hedging policy! Maintaining flexibility in a dynamic market is key to capitalizing on the best exchange rates the market has to offer. ABCM™ helps you to use fluctuating exchange rates to you advantage so you can maximize profits while eliminating unnecessary financial losses.
- Using a Hedging Policy that Fails to factor in Debt Service Projections
Your company’s financial stability will not be achieved unless you factor in multi-currency denominated liabilities like current interest rates, exchange rates, and the scope of the lending product. Don’t settle for going through a bank’s loan management system unless you accept complicated, pricey hedging transactions as the norm for your business. Working through a platform like ABCM™, users can manage multiple project cashflows, analyze risk, and select their hedged currency pair, expiry term, notational amount, and premium limits as simply as with a single click.
- Using Banks’ Rates and Premiums
Unfortunately, most current banks offer exchange rates and premiums that aren’t truly competitive with the market. No developing business wants to get stuck in the tedium of checking hedging transactions while the market moves on around them. To overcome this, growing companies need to tap into real time access to competitive exchange rates and optimize their transactions costs.
Outgrow the Limitations of a Traditional Bank
With Okoora’s Automated Business Currency Management platform, growing businesses have access invaluable market insight in a customizable, intuitive interface to align their business activity with the best exchange rates possible. Tap into the power of a dynamic market with real time AI insights and give your company the competitive edge it needs to play on the global scale.