Understanding A forward contract
(noun) a means to lock in a foreign currency exchange rate
International Budget Risk
Meeting planners, like other business professionals, have budgets and want to lock down costs. With foreign exchange rates unpredictable at best, many companies look to forwardwhen they need to buy foreign currency in the future and want to protect their budget now. A forward is a financial tool that allows you to secure a current exchange rate but make the actual currency exchange in the future. If the dollar weakens against the foreign currency over that time period, you win. If the dollar strengthens, you take a hit, but at least you've removed risk from the equation.
Why Should You Care?
Let's say that you budgeted $500,000 in December 2006 to pay your European suppliers for a 150-person sales incentive to London in February 2007. In December 2006, your money could be converted to 375,347 euros, but just a year later in December 2007, your dollars are worth 340,270 euros. That's more than 35,000 euros you'll have to cut from your budget!
Other Tools for the Job
A forward contract isn't the only financial tool that can help to protect your budget against a falling dollar. Other products include participating forwards, which allow buyers to purchase half their currency at a current rate and the other half either at that initial rate or the prevailing rate, whichever is more favorable. Of course, you pay more for getting protection and flexibility. There are also open and closed forwards, as well as a variety of option contracts that might suit your needs. Get help from a financial professional who knows the ropes.
How's Your Dollar Doing?
Up-to-the minute currency exchange rates are just a click away. You can track the currency of your international meeting destination against the dollar at sites such as XE Corp. (www.xe.com/ucc), Oanda.com (www.oanda.com/convert/classic), and CNNMoney.com (money.cnn.com/data/currencies).
Foreign exchange is a service provided by both banks and foreign exchange specialists, such as Travelex (which acquired major competitor Ruesch International in September 2007). Comparing service fees as well as exchange rates is an important consideration when choosing a foreign exchange supplier. Savings realized by a favorable rate of exchange can be quickly lost by high service charges.