Businesses like yours may be missing out on the benefits of transacting in foreign currencies — from saving costs and improving relationships to opening up new markets overseas. Whether you are new to FX, or not sure how and when to take advantage, we specialize in making it simpler. See below for more on how FX works, then visit our FX solutions page to get started.
Using local currencies can help your bottom line
Why transact in foreign currencies?
Whether you’re entering one or multiple overseas markets, your choice of transaction currency has important implications. Learn why paying in U.S. dollars isn’t necessarily the best approach.
FX Education Series:
Why Transact In Foreign Currencies?
JORDANA LYNCH
Foreign Exchange Executive
Bank of America
Whether you’re entering one or multiple overseas markets, your choice of transaction currency will impact your bottom line.
To help with your decision, let’s take an example where a company buys from a supplier in Brazil. If you pay in US dollars, the supplier will need to convert to local currency. Because of exchange rate uncertainty, they may build in a currency risk premium to compensate for fluctuations. Paying in Brazilian real can eliminate this premium and so may reduce your costs. And converting funds yourself offers complete visibility into the rates you receive. As local currency payments are typically credited to suppliers more quickly, you may be able to negotiate more favorable payment terms.
Let’s say you also decide to sell into Europe. Selling in Euros can make your product more competitive in local markets. You may attract buyers who can’t or won’t pay in US dollars or manage exchange rate risk themselves. And you may be able to increase pricing over time since you’re offering customers the convenience of paying in their own currency.
“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed. ©2021 Bank of America Corporation. All rights reserved
Why should I switch?
Using your home currency for your overseas business feels easy, but it simply moves the risk associated with currency transactions from you to your suppliers or customers. In return, they deduct it from what they pay you, or add it to what you pay them. Using local currencies helps avoid this and offers additional benefits.
Importers
Watch our video for insights on gaining more control over the prices you pay, and read how transacting in local currencies could save money and increase efficiency.
FX Education Series:
How Does FX Influence Import Costs?
JORDANA LYNCH
Foreign Exchange Executive
Bank of America
Understanding the impact of exchange rate movements can help your bottom line. Even if you pay in US dollars, currency fluctuations will have an effect on your import costs.
A strong dollar reduces your purchasing costs, while dollar weakness increases them. But even when the dollar is strong, you may end up incurring additional expense. That's because by paying in US dollars you're transferring the risk of currency movement to the overseas company you're buying from. To compensate for this, exporters generally build in a risk premium. This can add more than 5% to the price they offer you.
By managing this risk yourself and converting to an exporter's currency, you'll have greater control over the price you pay.
“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed. ©2021 Bank of America Corporation. All rights reserved
FX Education Series:
Considerations for Local Currency Payments
JORDANA LYNCH
Foreign Exchange Executive
Bank of America
Some US-based businesses buy from foreign partners in US dollars because they believe this will help them avoid extra costs. In fact, switching to local currency can help both US buyers and foreign sellers.
First, you could receive better pricing. Exporters rarely ask their US trade partners to accommodate their local currency preference for fear of hurting the relationship. Instead, they build in a risk premium into prices to protect themselves from currency fluctuations. Offering to pay in local currency means you might avoid this markup.
Second, payments can clear more quickly. When sending dollars to an overseas exporter, the exporter's bank may delay the credit due to conversion processing queues. Sending local currency avoids this issue and may improve supplier relationships. Because exchange rates are changing constantly, paying international vendors in foreign currency will cause fluctuations in a company's US dollar denominated costs. When the dollar is strengthening, costs could decrease, and when the dollar is weakening, costs could increase.
“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed. ©2021 Bank of America Corporation. All rights reserved
Exporters
See how setting prices in your customers’ currencies could attract new business and offer greater convenience.
FX Education Series:
How Does FX Impact Export Costs?
JORDANA LYNCH
Foreign Exchange Executive
Bank of America
It’s important to understand how currency fluctuations affect your business.
If your company sells to foreign markets in U.S. dollars, you’ll benefit from dollar weakness because your products will be less expensive in those markets. But if the dollar strengthens, your products become more costly and less competitive.
By charging in U.S. dollars, you essentially shifted the FX risk to the customers. Even if you keep your dollar prices steady, the price your customer pays fluctuates with the currency markets. Pricing your products in local currency can make you more competitive. You may attract customers who can’t pay in U.S. dollars or want greater convenience.
You can set your prices in foreign currencies to compete more effectively and with the right support, receiving foreign currency payments can be just as easy as receiving dollars.
“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed. ©2021 Bank of America Corporation. All rights reserved
How do FX markets work?
Learn about currency trading.
FX Education Series:
How Do FX Markets Work?
JORDANA LYNCH
Foreign Exchange Executive
Bank of America
The foreign exchange market is typically used to settle cross-currency payments and hedge currency risk. Given its global nature, the FX market is effectively open 24 hours a day, five days a week. This highly liquid, over the counter market, generates an estimated average daily turnover of more than $5 trillion.
The exchange rate at which a currency pair can be bought or sold, generally for delivery within two settlement days, is called the FX spot rate. Quotes are based on a two-way price or bid offer spread. The bid is the rate at which you can sell the base currency and the offer is the rate at which you can buy it.
The size of the spread reflects the liquidity of the currency, the size of the deal, and the time of day. Principle drivers of foreign exchange rates for any specific currency pair involve a variety of micro and macro-economic factors between the regions, including interest rates, current account deficits, public debt, terms of trade, economic performance, and political stability.
“Bank of America” and “BofA Securities” are the marketing names used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading in securities and financial instruments, and strategic advisory, and other investment banking activities, are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and Members of SIPC, and, in other jurisdictions, by locally registered entities. BofA Securities, Inc. and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed. ©2021 Bank of America Corporation. All rights reserved
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- For more information, please contact your Bank of America representative.
