5 Ways CFOs Can Reduce FX Costs

When it comes to foreign exchange operations, CFOs rightly tend to place emphasis on mitigating risk – something we focused on in our white paper on the evolution of the finance chief role. However, an often overlooked element is in FX cost reduction. Where once high foreign exchange costs were accepted as unavoidable (Spread, commission fee, delivery cost), there is now a wider choice for the finance chief, in addition to some strategies to follow which, if followed prudently, allow for costs to be cut considerably in currency conversion and international payments.1. Shop AroundDon’t settle for bank/broker rates. Banks and brokers often lure clients in by claiming they charge no commission fee. The truth is that they simply move it around, hiding it in the spread they offer on their exchange rate. They essentially charge 3 different fees for one transaction: (1) Spread, (2) commission and (3) delivery fee. Don’t get fooled. Shop around, extending your scope beyond the established paradigm of banks and brokers. Ask for clarity on the spreads they offer and ensure that there are no nasty, hidden fees which may come unexpectedly.2. Stick to the biggest currenciesFor your foreign exchange transactions try to always stay within the top traded currencies: US dollar, Euro, British pound sterling, Japanese yen and the Australian dollar. US dollar and Euro account for over 55% of all FX trades, as highlighted in our FX market infographic. The higher the trade volume typically, the lower the spreads, as these currencies offer much higher liquidity and are more readily available.3. Avoid exotic currenciesConversely, low traded currencies are almost always accompanied by very high spreads, as they are harder to come by. Try to avoid them. In particular, avoid exotic currencies. These include the Thai baht and the Iraqi dinari.4. Protect your profit marginsHedging is crucial to mitigate risk and protect profit margins. Lack of attention to hedging can quickly wipe out profits. Lock in a good exchange rate when it comes around. Explore the use of forwards and swaps, to ensure you make the most informed decision you can on each transaction.5. Choose an optimised serviceBanks and brokers still operate through anachronistic, inefficient methods. One part of this is to maintain their system of opacity, ultimately, to benefit their financial position at your expense. Choose an optimised service that brings transparency, cost-efficiency and ease of use. We believe that at Kantox, we are second to none in meeting these requirements. Transparency is our core value, our customer-centred service is renowned for its excellence, and our brilliant team has talent in spades. If you know of any comparable service, please let us know. We believe in open competition, and, not only are we happy to be compared, we encourage it. Choose an optimised service. Choose Kantox.To know more, please download our white paper on the evolution of the changing CFO roleDownload CFO