This year has already shown a large amount of rate volatility. That has many businesses looking for ways to protect their profit margins from market volatility during these risky economic times.
There are several strategies your business can employ. This article will discuss multi-currency accounts, their advantages, and why your business may want to use them.
What a Multi-Currency Account Is — and Isn’t
A multi-currency account lets you hold up to 34 major currencies in a single account. It allows you to accept or make payments in any of those currencies. It’s important to note that a multi-currency account is not the same as an international bank account. Businesses may opt to use multi-currency accounts because they work with several currencies, and one multi-currency account can replace several international bank accounts.
Setting up a multi-currency account generally requires only the basic documents you would need for any account. It’s a faster process than setting up an international bank account. International bank accounts are cumbersome to initiate and require many different documents to approve the account.
Multi-currency accounts usually have no fees, or depending on the currency held, may have a low fee. This can reduce your banking costs compared to international bank accounts, which usually have monthly maintenance fees. And international bank accounts are usually restricted to holding only one currency at a time. If you want to be able to do business with more than one currency, you’ll have several accounts to manage, leading to more fees and more time spent.
A multi-currency account pays no interest. However, they also won’t incur negative interest rates the way international bank accounts can with certain currencies. If negative interest rates become unavoidable, the firm holding your multi-currency account is more likely to help absorb some of the costs than your international bank.
Advantages of a Multi-Currency Account
One of the main uses of a multi-currency account is to manage FX volatility by holding multiple currencies in a single account. Because of this feature, you can accept payments in different currencies.
If the rates aren’t favorable when you receive a foreign currency, you’re not obligated to immediately convert it. You can hold until rates improve, or use that currency to make a payment elsewhere. Either way, this allows you to protect your profit margin, instead of letting volatility erode it.
Another option is to buy currencies at a favorable rate and hold them in the account for future payments. Businesses that are cash-rich with a surplus of liquidity can take advantage of positive moves in the currency markets, while managing risk against the possibility of negative volatility. Companies may also buy incremental amounts of currency to hold. They can use their cash surplus to take advantage of further improvements in the market.
Offering a Better Customer Experience
With the focus on eCommerce during the pandemic, businesses are also looking for ways to provide a better experience to their customers. It’s more important than ever to make every transaction as simple and personalized as you can. One way to do this is to accept payment from international customers in their currencies.
This is easy and convenient to do with a multi-currency account. All customers need is the amount and the banking details on where you want to receive payment. By accepting multiple currencies for payment, you make it easier for customers in other countries to do business with you. Most of your international competitors already offer this service to customers, so offering this option will make you more competitive in the international market.
Not only will international customers appreciate the convenience of paying in their own currency, but it also helps them manage risk themselves. When the FX market is volatile, rates moving the wrong way can lead to higher costs for your customers if they have to convert currencies before payment.
No matter what kind of business you’re in, you face the same pressures as everyone else: how to manage risk in an uncertain economic climate. There are many strategies you can employ to help optimize your bottom-line margin. Reducing banking fees, hedging to minimize rate volatility, or accepting multiple currencies can help you protect your profit margins.
A multi-currency account can be a part of your strategy to manage risk and continue to be competitive in an international market. The experts at Monex USA (formerly TempusFX) can help you determine the best tools for your business.
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