Subject:
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Re: Suspension of UK factoring services (was Re: Suspension of English factoring services
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Newsgroups:
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lugnet.market.services
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Date:
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Thu, 23 Mar 2000 15:50:44 GMT
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Viewed:
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2360 times
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A couple thoughts on minimizing exchange rate risk:
- Charge a small percentage of the transaction amount as an exchange fee
paid to the factoree. Then if by the time real money is transferred to
the factoree, the exchange rate has fluctuated down, the exchange fees
will make up some portion of that difference.
- Keep records of what payments were made at what exchange rates. Only
send real money to the factoree when the exchange rate is at least as
favorable as the rate when the transaction was conducted.
- Another way to do this is to keep two balances for the factorees, one
in dollars and one in their currency. The one in their currency reflects
the actual money they have received and paid in that currency. The one
in dollars reflects the actual money Larry has received or paid in
dollars. When real money is transferred, adjust the dollar balance by
the amount of dollars involved. Adjust the other balance by the amount
of that currency involved.
Example: Simon has a balance of USD 1600 and UKP 1000. Simon needs to
have his balance reduced, so Larry puts USD 1200 in an envelope and
sends to Simon. At the point Simon deposits the money into his bank, the
exchange rate results in him getting 950 UKP. The new balances are USD
400 and UKP 50. Of course this obviously is an extreme exchange rate
balance in Simon's favor, and may justify an account re-balancing to
divide the exchange rate profit realized.
In this system, I would still reccomend charging a slightly higher rate
to to the buyer/seller because if the exchange rate fluctuation results
in a loss, it would be nice to have a surplus to cover it. There could
also be some balancing of the exchange rate profit over all the
factorees, so that in the above example, let's say the rate fluctuation
for USD to ITL has gone against Mario's favor, some of the profit
realized in Simon's balance could be shifted to negate Mario's potential
loss.
Of course this is a lot more work (and certainly is part of why banks
give their customers less favorable exchange rates than they themselves
get).
All we can hope for is that as the economy globalizes, the exchange rate
fluctuation will diminish (like it seems it should, we certainly don't
worry about regional fluctuation of the value of the dollar within the
US, despite the fact that there must be imbalances of economy which
would result in such fluctuation if instead of a national currency, we
had state currencies [one place this is sometimes reflected in in the
wages large companies pay in different regions of the country, some
companies do adjust wages for local costs of living]).
--
Frank Filz
-----------------------------
Work: mailto:ffilz@us.ibm.com (business only please)
Home: mailto:ffilz@mindspring.com
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