D-3- The currency for your international payment


With the launch of the single currency, the rules changed. Indeed, the first examples of the currency were officialy introduced to the european council in December 1996, by the european monetary institute. They were the presented to the public.

The Euro Banknotes were put in circulation, on January 1, 2002.

This was facilitated by the creation of the european monetary institute on January 1, 1994. Its objective was to prepare for the creation of this single currency with the establisment of the European System of Central Banks (ESCB).

It has enabled the eleven member-states participating in the monetary union to set the effective conversion rates on january 1, 1999. Their objective was to organize a single monetary policy under the purview of the ECB (European Central Bank).

3-2- The currency for your transaction and protection

But not all transactions are european. Distinguishing these transaction, they do not usually use their own country's currency for transactions. In this case, if you make your payment in a foreign currency, you'll be exposed to a major risk, the exchange risk. The exporter or the importer should, especially if trade flows are important be able to estimate the exchange rate before and during the transaction.

You sould choose a currency taht is going to put your company in a strong position. In this manner, its your company that puts your partner in the exchange risk position.

The english company, if possible, should negociate the contract in its own currency to avoid risk. Otherwise, the company should protect itself against the exchange rate with appropriate insurance.

3-1- Other protection methods

. There are different methods to manage the exchange risk coverage. One is a compensation agreement (corporate barter), a technique that offers companies a solution to merge two bilateral sales transactions. It may also be possible to simply include specific clauses in your commercial contracts. The latter are, nevertheless difficult to negotiate.

The company can also choose to use anather technique, utilizing the services of its bank; Banks offer currency options, forward hedges, or foreign currency loans.