Don’t let the following common foreign exchange myths steer you away from creating a solid FX strategy.
Gwen Paddock, senior director, agriculture at RBC is a specialist in agribusiness. Since earning her B.Sc. with a major in agriculture economics she has been working with agriculture clients. A farmer at heart, Paddock was raised on a beef cow-calf farm outside Guelph, Ont.
1. The market can be forecast
No one can predict exchange rates with absolute certainty as dozens of factors influence FX rates. Forecasts are based on past assumptions that don’t always translate in future.
2. I should make money at foreign exchange
As a byproduct of your business operations, FX can have an impact on profitability. FX risk management also takes resources away from your core business activity. While FX fluctuations can result in profits, they can also result in losses.
3. My operation is too small for an FX strategy
No business is too small to protect profits and commonly used strategies are scalable for any size business. A strategy only requires you know your risks and options.
4. Quotes from big banks aren’t as competitive as FX boutiques
Ensure you’re comparing apples to apples. Timing is key; make sure dates, amounts and other critical terms are identical. Quotes must be firm.