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Janice France-Pettit: Foreign-exchange market strategies

Union Bank

Posted: March 26, 2010 10:25 p.m.
Updated: March 26, 2010 10:23 p.m.
 
The foreign-exchange market continues to be one of the largest, spanning the globe and open for business 24 hours a day, six days a week. International businesses use the market to buy and sell products in foreign countries, while investors trade currencies in hopes of generating a profit from market fluctuations.

"The foreign-exchange market's massive size and liquidity make it a key variable for many global transactions," said Jennifer Murphy, vice president and foreign-exchange adviser for Union Bank. "With the 24-hour access provided by the Internet, it's easy to see how it can be an attractive option for investors at every level."

Whether you are expanding your business to foreign markets or looking to diversify your portfolio by investing in foreign currency, understanding how to best leverage the foreign-exchange market may be a key component to your financial goals and may require careful and strategic business planning.

Streamline payments
Understanding the currencies you are exchanging and simplifying the transactions are important parts of maximizing your profit margins in the foreign-exchange market.

Evaluate what currency is best for you when invoicing a particular country, or when paying an invoice, make selling or purchasing your products (if any) easy by pricing it in the local currency and use payment services provided by many financial institutions to send and receive wire payments and take advantage of competitive rates.

"Consulting with a knowledgeable foreign-exchange adviser can provide insight about the politics, business culture and performance risks associated with international business," Murphy said.

In addition, foreign currency accounts may be a viable option for managing payments and receivables in multiple currencies, avoiding unnecessary exchange rate conversions and maintaining balances for future payments.

Make sure you are aware of and understand the various kinds of accounts available, including demand accounts and time deposits, to help determine which one may be right for you.

Reduce risk exposure
The foreign-exchange market's frequent fluctuations create an inherent risk in doing business internationally. Reducing exposure to sudden shifts in exchange rates and managing cash flows efficiently may allow you to protect yourself from negative market swings.
In addition, using protective financial instruments such as forwards and options that lock in favorable exchange rates may prove beneficial. These hedging strategies can provide insurance from negative market movements.

The foreign-exchange market offers exciting financial opportunities to businesses and investors of all sizes. For those looking to leverage the market for a profit, strategic investing, careful planning and a thorough comprehension of its components may be the keys to achieving your financial goals.

The foregoing article is intended to provide general information about foreign-exchange strategies and is not considered financial or foreign-exchange advice from Union Bank. Please consult your financial or foreign-exchange adviser.

Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal.

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