Currency and exchange-rate riskLesson 68 of 136

Currency and exchange-rate risk

Decide, before you agree a price, which currency the deal will be priced in, and understand that whichever party's currency is not used carries the exchange-rate risk. A forward contract, arranged through your bank, lets you lock in today's exchange rate for a payment you will actually make in the future, protecting your margin from currency swings between order and payment. Natural hedging, matching foreign-currency costs against foreign-currency income where your business has any, is a lower-cost alternative once your operation is large enough to have both.

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