Companies that conduct business internationally know that having an FX plan and budget in place makes good money sense. It allows businesses to predict fluctuations in currency and manage costs more effectively as they transact globally. So, what’s involved in developing a sound FX plan? Here are some tips for you to consider:
Step 1 – Start with an FX Budget Estimate
First, estimate what you plan to spend on exchange rates and transactions fees for the upcoming year. If you conducted business globally the year prior, then calculating those expenses would be a good place to start. Whether you have last years data or not, all calculations should align to your business goals and planned international transaction volume for the year ahead.
Step 2 – Conduct a Currency Trend Analysis
A currency’s past performance is another area that contributes to your FX budget calculations. Reviewing previous market activity acts as an indicator for future performance. While not an exact science, conducting a 1 to 5-year trend analysis can help you estimate how that currency will perform in the upcoming year; allowing you to be more accurate when budgeting FX costs for your business. Here’s Western Union’s latest currency trend analysis to get you started.
Step 3 – Future Global Events
Global events are another factor that causes currency fluctuations. These shifts can be the result of economic, social or political factors. For example, knowing when a foreign central bank plans to make an interest rate announcement; or, if there’s an upcoming election in a country where you conduct business, allows you to anticipate movements in currency around these events letting you plan your business costs and currency transactions accordingly.
With an FX budget in place, you’ll be better equipped to predict your FX expenses and track the progress of your actual international transaction costs.
