Limiting currency risk

Published by:
Netherlands Chamber of Commerce, KVK
Netherlands Chamber of Commerce, KVK

Do you regularly pay or get paid by customers in a currency other than the euro? The exchange rate of that currency may change between invoicing and payment. As a result, there is currency risk, also known as exchange rate risk. Read how to limit the negative consequences of currency changes as much as possible.

Changing exchange rates affect your profit margin. If you do business with countries outside the eurozone, you have currency risk. The value of foreign currencies can be lower or higher compared to the euro. For example, do you receive or pay in US dollars? Then there is a risk that the value of the amount in euros will change.

Limit currency risk

Investigate the currency risks within your company. Are you at high risk? Then look for a suitable solution with your bank. You can limit currency risk in various ways:

Put a currency clause in the quote

You can include a currency clause in your price quote. This states that you can adjust the sales price to the exchange rate that applies at the time that you or your customer must pay. You can specify a minimum and maximum price. This is called bandwidth. When the price change is higher or lower than the bandwidth, the clause applies.

Forward transaction

A forward transaction (valutatermijntransactie) is useful if you need to pay or receive an amount in a foreign currency in the future. This allows you to set the exchange rate of the foreign currency in advance with your bank. This way, you are certain of the amount in euros you pay or receive. A forward transaction is an insurance against losses due to exchange rate fluctuations.

Currency options

A currency option gives you the right to buy a foreign currency at a certain rate. Having a currency option covers your exchange rate risk, but you pay a premium to have this right. This can be to your advantage if an unfavourable exchange rate at the time of payment means you will receive less money. If the exchange rate is more favourable to you at the time of payment, you do not need to use the currency option.

Foreign currency account

You have a foreign currency account next to your normal bank account. This is useful if you regularly pay or get paid in the same foreign currency. For example, you prevent loss of margin between purchases and sales of other currencies. There is still an exchange rate risk with a foreign currency account. This is because the equivalent value in euros depends on the exchange rate. But you choose when you exchange your balance for euros. This can be to your advantage when there is a favourable exchange rate.

Calculate exchange rate

You can quickly and easily calculate the exchange rate (in Dutch) with an online tool, for example from the Netherlands Tax Administration. In 2 clicks you can see how much your euro is worth in other currencies.

Questions relating to this article?

Please contact the Netherlands Chamber of Commerce, KVK