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DISCOVER HOW WE CAN HELP YOU                 SEND or RECEIVE PAYMENTS

 

Full PODCAST Transcript:

John Min [00:00:02]

When the dollar rallies significantly, we let all our clients know. It’s like Euro is on sale today, Yen is on sale today. Sometimes you can save another 100 to 150 basis points and that’s when you lock in for your future obligations.

Andy Shiles [00:00:50]

Folks, we’re in for a simply trade podcast show. That’s going to be a really good one this time. You know we have a lot of good shows, they’re up and down but this is going to be something that we haven’t had a good discussion on and we’ve got an expert that’s going to come on to play, dealing with whenever you’re buying and selling international transactions. There’s usually currency exchange in that, and with that, we’re going to get into some nitty gritty on what to look for and the industry and whatnot. But Lala, I’m excited about this one. This is going to be a cool discussion.

Lalo Solorzano [00:01:29]

It is, and unfortunately I’m so clueless about this topic. I mean I know it’s a factor or something that importers, exporters need to be aware of when they’re getting paid or when they’re paying. The closest I can think of, and this might be a little joke or not, but I mean it’s somewhat true, and our guest is probably going to say “no goofball, that has nothing to do with it,” but this is the closest I can get to it. I live on the border here in El Paso. Right, right. I remember when we were little kids and we would go a lot to Mexico, my dad and, and mom, their families are in Mexico of course and we would visit.

The only difference between El Paso and Juarez, our neighboring city in Mexico is that there’s a border, you know, basically it’s one big community, you know, so, so it was interchangeable. We go visit aunts and uncles and cousins and all that, you know, like if we were Going down the block, we just happened across the border. But I remember this very clearly: we had dollars and we had to exchange them into pesos. I remember my dad’s like, no, this one’s too high. No, this one’s too low. Oh no, I will get a better rate here. We’ll get a better rate there. So that is like my best analogy I can think of.

And again, John may, may say no, no, no.

John Min [00:02:54]

That sums it up really well.

Lalo Solorzano [00:02:57]

Okay, great. Awesome. Okay, so on the show and John, John Min, he came to us via our friends at NCBFAA. Thank you very much for, for suggesting him as a guest. But John, I mean, Andy, I don’t know if you, you may have another kickoff here to this or, or not.

Andy Shiles [00:03:16]

No. Well, I’ve got, I’m, I’m gearing up for it. But why don’t you or John, welcome to the show. But why don’t you tell folks who you’re working with and, and your position and what you do.

John Min [00:03:30]

Glad I’m here. Happy Friday from Washington D.C.! I’m the chief “nerdy” economist for Monex. Monex consists of three businesses: Monex USA, Monex Europe, and Monex Mexico. In fact, if you go to Mexico City, go to the financial district. The most beautiful building there, which is about 24 stories tall is our building. For all three business units combined we have about 3,000 people around the world, and we focus on only one financial asset which is foreign exchange. There’s a risk management aspect of it so we can help you hedge those volatile currency movements, and the second part is the payment side. We are very good at delivering funds from bank account A to bank account B that requires conversion.

Typically with banks, it takes about two to three days for the money to show up in euros or the pound or the yen. With us, it takes about 24 hours. And I think we’re the only ones… I take it back, next to JP Morgan. So we’re one of two or three financial institutions in the United States where you can get in contact with us Friday at 4:30, and we can have your Mexican peso in your local account within 30 minutes.

That’s what we do. But we’re very excited to be here because we work a lot of freight forwarders, custom brokers, wine importers, food importers, machine tool companies that buy parts from around the world. And of course, we also work with bigger companies, enterprise companies, because they got offices around the world. They got to repatriate their profit, or they need to make investment overseas. We get involved in all size of transactions.

Andy Shiles [00:05:18]

All right, John, So the one thing that I’m excited about when I hear that you are, you were calling yourself the nerdy economist. I love to talk about the cause and effect. Now, listen, you may have to draw me a picture. I’m dumb as a box of rocks.

Okay, let’s talk about this a little bit more. The more you understand, in my opinion of the intent, the situation, the structure of business, if you will, and all the better. You would have to take advantage of opportunities that are out there in the business transaction. So we’ll get into some of that.

One of the things, as far as the exchange rate, I will say that as we’re going through, you were talking about minimizing the risk. So let’s first take a standard transaction.

Let’s just say that I am a distributor in the US, and I have come across a product of some kind, that I am going to buy. Let’s just say it’s from Europe for right now, whatever this widget is, and I’m getting it from a factory and I’m going to buy a lot of it and I have a purchase order out there.

So let’s say 100,000 units, and they ship 1,000 units at a time. All that. So with that, help me finish out the scenario of what you normally see. I mean, is this something that. All right, let’s say it’s Italian lira. It’s an Italian company, they’re selling to me or I’m buying it in Italian lira, or should I buy it in US Dollars or where should I go? What do you normally see in contracts?

John Min [00:07:18]

Got it. First of all, Andy, I think you’re dating yourself. The Italian Lira has disappeared

Andy Shiles [00:07:24]

Oh, that’s right. Oh, God. I was about to tell you. Hey, listen, my memory is as long as a turtle’s tail, too, so I forgot about that.

John Min [00:07:35]

Yeah, no, but I’ve been doing this for 30 years. I remember the day sitting at the trading floor when all these beautiful local currencies disappeared. The euro emerged. And idea was for the euro to act as a counterpart to the US because the rest of the world didn’t like the US dollar dominance.

Lalo Solorzano [00:09:12]

For a while I missed the news that there was a—what is it, Brexit? “Italics-it,” or something, I don’t know.

John Min [00:09:23]

That’s what, that’s one of the reasons why we had a Brexit because they want to have a national currency. But you know, the pound never joined the euro in the first place. It’s an island economy and they so we got still got the pound, we’ve got Switzerland, which is like an island in the middle of the EU, but we got the euro which is now the common currency in Europe.

But now going back to the situation, the importer in this case, the distributor, the number one mistake that we find a lot by American importers is like I don’t want to deal with foreign exchange. I can’t figure out these numbers, they look foreign to me. The calculation is off. Let’s just do it in dollars. So they tell the supplier overseas, you know what, just invoice me in dollars, let me pay you in dollars. I don’t have to worry about this.

The problem with that is that’s almost like walking into 711 and getting a gallon of milk knowing that it’s double the price going into grocery store because there’s cost of convenience. In this case, yeah, it is convenient for you to send dollars but what we see is typically a markup.

There’s cost of convenience anywhere from 5 to 10%. And the main reason is if I’m the supplier in Germany in this case and they’re going to pay me in dollars, let’s say in 30 days, 60 days, 90 days, well within 90 days it’s like a lifetime in the foreign exchange market, because the dollar/euro value could fluctuate, it usually fluctuates anywhere from 5 to 7%.

So to hedge myself, as like an insurance policy, I will price it, and then I will mark up 7 to 10% extra. You want to pay me in dollars, fine, you have to pay 10% more in dollars so that in case the market goes against me, I am covered when I convert it to euros.

Now it’s a 50/50 chance, right? 90 days from today, If I, as the supplier, get the dollars and I say, oh my God, the euro weakened during the past 90 days! I’m doubling my profit, but I’m not going to tell you. But if the market goes the other way, the dollar weakens significantly, by the time I get the dollar and I don’t recover my original price that I was expecting in euros, we invoice you, the buyer, and say, oh sorry, the dollar has weakened, you got to make up the difference.

But they never rebate you. So our recommendation is: always deal in local currencies. So you eliminate that markup. And easiest way to do that is you just tell the supplier, build me in dollars and euros. We call it dual invoice. And when you get the invoice with the euro and dollar, you just divide the numbers together and you know, and you compare to where the current spot market is.

Then you know exactly what the markup is, but you will definitely save more if you pay in local currency versus the dollar.

Andy Shiles [00:12:28]

Well that’s where I was going. Is that. So the takeaway from based on this discussion is to deal with local currency, whether it’s the euros or whatever country you’re dealing with. All right, so that’s a key thing. And with that, you can then watch that fluctuation when it’s time to pay the invoice.

If you see where the dollar is strong, it’ll take less dollars in a sense to pay for that. So all right, so here’s the other thing, let’s say that I get an invoice in euros, then I should pay it in euros, is that right?

John Min [00:13:11]

Exactly.

Andy Shiles [00:13:12]
And doing that is where I would go through a company like yours, a bank like yours or something. Right?

John Min [00:13:18]

Well in United States our market share is still relatively small. When I say “ours” I mean non bank entities or like fintechs, like us. If you go to other side of the pond, pretty much all the companies I know, they deal with fintechs or money service business because they’re more sophisticated when it comes to foreign exchange because they’re used to converting money, but in United States, most companies are in the mindset of “FX, I just go to my bank.”

We call it the monopolistic relationship. You go to your bank and whatever the numbers they give you, you make the payments. Now one thing that everyone should know, this is the second most common mistake people make. So they need to make euro payments but they don’t realize all foreign exchange transactions are over the counter.

That’s the technical term, which means they’re negotiated. So if you go to three different banks, you’re going to get three different pricing for the same transaction. If you go to three different traders within a bank, you’re going to get three different prices and the less sophisticated you are, the higher the markup the banks will place on you.

And the worst time to do it is Friday afternoon calling from the airport on your cell phone, I need to send €100,000 to your branch manager. Oh, watch out, your markup is going to be huge. And if you are just interested in these markups, just go to Google, type in FX rate scandals.

You see all these banks getting caught because sometimes they mark up just too much. But that being the case, there’s no one price rule, and the foreign exchange market is not regulated by any government entity at all globally.

Andy Shiles [00:14:55]

Large companies usually have, you know, their internal accounting processes. They may deal with that and say, you know, they’ll pay for locally-

John Min [00:15:18]

Yeah, they may have an account overseas, they can use that, or they can have multiple banking relationships. So you can bid it out if you want. For a smaller company-

Andy Shiles [00:15:27]

Well, in the smaller or medium sized companies in dealing with this. So it sounds like again the second takeaway here, one is as we just said, you know, purchase your goods using the local currency. Second, when it comes time to actually paying that, you can shop that around a little bit here and all that.

And as far as, and how to do that, we’ll talk through that. But basically you’re saying you can talk to different financial institutions or brokers or whatever, to I guess zero in on what would be the best company to execute your transaction. If I got that right.

All right. So the results of that though, here’s what’s key of what I’m hearing you now. Again, you know, that’s where I’m trying to make sure, I’m trying to understand this as we’re going through this. This could be a situation where you can dramatically improve or decrease your profit margin in this or, you know, dramatically raise your cost of the transaction or minimize that cost.

John Min [00:16:43]

Which goes to your bottom line directly. Yeah. In fact, there is a professor at NYU Stern, their business school, his students, they do annual survey of the average profit, well, gross margin for different industries in the United States. If you are a distributor, wholesale, distributor, your margin is about 10 to 15%. That’s the average.

But in the foreign exchange market, just comparing rates among different financial institutions, you could easily save 1 to 200 basis points. So if your profit margin is 10% and you can save 200 basis points, that’s 20% improvement in your bottom line just by doing the transaction with someone who’s willing to give you fair and competitive exchange rates, not, we call it jokingly, retail rates.

So the last thing you want to do is go to a bank branch and then do the wire transfer. Those are like 2 to 300 basis points above where the market should be. On $100,000, you’re literally giving $3,000 to a bank plus your wire fee.

Andy Shiles [00:17:56]

Lord have mercy. Okay, this is good. All right, Lalo, forgive me for jumping in there, but. All right.

Lalo Solorzano [00:18:02]

What I was going to ask John is. So why is it, I mean, again, very naive, this is very new to me, but why is it that we see a published exchange rate? Is that just like a suggestion?

John Min [00:18:15]

No, no, so the foreign exchange market is the largest financial market in the world. It’s about $8 trillion a day, per day. 24 hours, seven days a week. And out of 27 trillion, about 93% of it are hot trades. We call it hot money.

These are currencies being bought and sold by pension funds, hedge funds, big traders. They’re just moving money. Buy low, sell high. Just moving money all day long. And that’s how they make money. Now for those guys we call it a wholesale rate. So interbank rates, that’s technical term, those are the rates you see on Bloomberg, on the websites, so that’s like the benchmark rate.

But in order to get anything close to that pricing, you got to do about $30 to $50 million transactions, like every day. Because now you can play the wholesale. Now, if you’re a small business, typically your invoice is anywhere from $30,000 to $50,000 per container of wine or whatever it might be.

You’re not going to get that rate. So that’s why there’s a markup. And that markup, there’s no rules to what the markup should be. The less sophisticated, the higher the markup, that I know because it has been documented.

Lalo Solorzano [00:19:37]

And so hence I guess the, the, the how I kicked off the show, my, when my mom and my dad, when we would go and we would jump from exchange house to an exchange house because one would sell it higher or lower than the other, I guess. Okay, okay.

John Min [00:19:53]

Now, by the way, the one place you should avoid is a Heathrow airport exchange. Their markup is 12%.

Andy Shiles [00:20:05]

It’s like unreal as, like, you know, I can remember having, oh, I need to get some pounds. And I want to convert it back over to us. And I’m looking, like man… No, you know that and hotels, hotels at the front desk.

John Min [00:20:21]

Well, because hotel makes money and whoever the provider also makes. So we have a double markup on that one.

Lalo Solorzano [00:20:28]

Oh, good to know. I’m going, I’m going to Heathrow in September.

John Min [00:20:33]

Go to the ATM, is going to be about 2.5% on an ATM card.

Lalo Solorzano [00:20:40]

Wow. Okay, cool.

Andy Shiles [00:20:43]

All right, so here’s something as we’re going through and talking about it. So it’s, I love this discussion. Let’s again, I asked this question where you’re trying to minimize the risk. So when you’re talking about minimizing the risk, are there, you know, one thing you’re saying, minimizing the risk as far as your profit and loss or your added cost or whatever.

So you want to, you know, obviously whoever you’re doing the transaction with, you’re trying to maximize your benefit on the exchange. That’s one thing. Are there any other things in the trying to minimize the risk? Are you, in doing this financial transaction, are there any vetting of the entities of the financial transaction here?

Are you doing anything, that kind of stuff?

John Min [00:21:33]

Well, our counterparts are the world’s largest banks. So we buy and sell to each other in a bulk. So that’s it. Now, for small businesses in the US if you’re looking for financial institutions, banks are safe because they’re heavily regulated, either at the state/federal level. One thing you should watch out for is that out of 4,300 banks, about 4,200 banks, they don’t do their own foreign exchange.

So they’re resellers of bigger banks. That’s the worst case scenario. So if you’re sitting in Texas, you’re dealing with the community bank and Regional Bank, 99% of the time you’re dealing with Wells Fargo, US Bank, JP Morgan, we call it corresponding Banks, they’re the ones who is actually doing it. Now, from the Corresponding Bank’s perspective, it’s not really their customer.

So there’s already a markup. That’s huge. That’s one. Number two, depending on the relationship they have with the community bank, the community bank also wants to get a cut, so they add their markup. Therefore, sometimes you pay 3%, 4% above what you should be paying again in dollar terms on $100,000 invoice. That’s $3,000 to $4,000 hidden fee.

By the way, when you get a bank statement at the end of the month, a lot of the small businesses, the banks will do the analysis to kind of say your wire fee is this or that, but they don’t show you the exchange rate. It’s hidden.

Andy Shiles [00:23:07]

Interesting, interesting. So it’s one of those things.

John Min [00:23:10]

Yeah. If you call your bank to say, I want to see the exchange rate, some banks will actually charge you for it.

Lalo Solorzano [00:23:16]

Oh, wow.

John Min [00:23:17]

Because they had to pull a special report.

Andy Shiles [00:23:20]

Well, to that point, I will also say, I guess in looking at it, this is one of those things from an accounting perspective that, you know, give some thought to the services that your financial institution that you’re using is offering to you. So if it’s kind of buried in there, then chances are they’re not really a big player.

They’re, you know, in that secondary or treasury market. So it’s like, okay, maybe I need to, you know, it doesn’t mean that everything has to go through there. But your international transactions, you want to deal with the big boys or the key players. It sounds like.

John Min [00:23:56]

Yeah, Andy, but here’s another drawback, another challenge for small businesses. Let’s say you realize “I need to shop around,” so you’re going to call another bank in your town to get the rates. They’re not going to quote you because you don’t have a bank account with them. So in order to get a second provider, get a second quote, you need to open up another bank account.

And, you know, that’s a very painful process. So you’re kind of like captive to your bank. That’s why fintechs like us exist, because we’re not a bank, but we are licensed by 50 state banking commissions just to do the foreign exchange, international payments part. So your credit line, everything stays exactly the same with your bank.

You only use us for the FX transactions and we can onboard you in four hours.

Andy Shiles [00:24:46]

That’s excellent. Well, I’d say Again, this is one of those where folks we’re going to have. Excuse me, we’re going to have John Min’s contact information here. So if you have any more questions, I’m sure you know he can answer you or get you the right party or entity as far as to answer your questions.

But as we’re going through this, does your– in these international transactions, let’s say that I’ve done all I need to do– I’ve got a contract, I’ve got a factory, I have vetted people in the parties to the transaction to figure out, are they on the denied party screening list? Are they on the restricted party screening list? And done all.

Let’s say, now we’re down to the actual nitty gritty of the actual transaction. Is there anything that you’re doing in the background of saying, is this a good entity, this is a good person to do business with, if you will, or is this is somebody listed on a government list.

John Min [00:25:52]

That is done 100%. Every transaction we do KYC know your customer AML from potential money laundering and behind the scenes there’s various lists– terrorist lists, countries where we can’t send the money, and we have to abide by that because our license at each state is dependent on us passing an annual audit. If we do any type of transaction where money shows up in North Korea, we could lose our license.

Andy Shiles [00:26:22]

All right, well, I get that. So here’s where I was going with that. Is that now, let’s say that I’m new to this deal and the international transactions or I’m up and coming. I’ve got taken over and I’m looking at this going, hey, we need to do a better job of vetting internally to our company.

I want to make sure that we’re crossing the T’s and dotting the I’s. As a good corporate citizen. Is this something where I could reach out to your company and say, hey, I want to make sure we’re doing things right? So I don’t want to go through this situation, send you a financial transaction and all of a sudden you flag it going, oh wait, wait a minute, we got a problem.

Is that something that I can align with you or you with us in saying, is there a way to update my information using your information or something? How to make sure.

John Min [00:27:12]

Yeah, that’s automatically done. And just to give you very specific example, let’s say you finally get an invoice from overseas and you want to put the Beneficiary information into our platform. Obviously they have a different, they don’t have a Fed routing number, they have IBAN and different numbers. So you put that in, and behind the scenes we verify that is a legitimate bank account and we pre approve. In other words, we don’t send out your funds. We actually ping you to make sure that it is who you think it is. And once everything is verified, then you’re good to go.

Andy Shiles [00:27:49]

Say, hey, folks, listen, John’s given some great advice here, but this one right here is one of those. Even in the midst of international transactions, this is a key factor that basically, if I’m using your services, you’ve got my back. You’re doing some checking for me on my behalf. I can tell you that I have consulted with some of my clients in the past that were doing some business.

They had been working on a deal for 18 months, had two different law firms involved. Supposedly everybody was vetted and all, and it was coming down to the supply chain and all that. And I happened to be brought in at the ninth hour, if you will. Hey, we just want to make sure all this is coming together, you know, right.

Long story short, I mean, within the first two days, I’m reviewing information and I’m going, something doesn’t seem to be right. Are you sure these folks are good? And it was dealing with a company out of South Africa. And long story short, I went and they said, no, no, no, we, you know, two law firms, everybody’s great.

18 months, you know, I said, have you provided any money? And There was a $350,000 deposit, and it was a multimillion dollar deal. It was a $350,000 deposit sent to a neutral bank that was holding it before all the transactions were taking place. And within five days, I’m going, something’s not right here.

And so I had my own red flags and go, you know, all that, long story short, again, out of this. I will say that what we discovered was that there were people that were presenting inventory for. In this case, it was PPE. It was protective, personal protective equipment, gloves and masks and things.

And it turned out to be that they had some old inventory that had expired, and they were presenting it as, we’ve got these, you know, tens of thousands of boxes and everything else, but it was just smoke and mirrors and, and all that. And it took them probably nine months to get that $350,000 back.

In the midst of that, I was going, you guys are trying to handle this on your own. I would have gone through, you know, somebody like yourself just to say is this a legitimate entity? And it turned out it wasn’t.

John Min [00:30:23]

Now we only focus on the payment side, right? We verify the bank account. We verify it is good, the money will get there. Now if there’s any fraud that’s related to business side, that’s outside, right?

Andy Shiles [00:30:41]

And it was one of these that the account itself that finally that they were trying to get payment to was like set up real quick and all that. And it was like, something’s not right here folks.

John Min [00:30:53]

Exactly. Yeah.

Andy Shiles [00:30:54]

So anyway. All right, that said, now let me ask another question. The issue with like sanctions, the US has got sanctions against a lot of Russian entities, you know, Iran, North Korea, all those kinds of things. And that stuff is added sometimes, you know, very quickly or new, new additions, all that. So as we’re going through that, that’s again something where you’re staying probably current with the most recent additions and changes, aren’t you?

John Min [00:31:28]

Yeah, we stay almost real time current and in fact, one of our largest team here is the compliance side. We just need to make sure that we’re abiding by every regulation and law that’s out there, and that’s why we get audited. And we have a running joke, we’re running a bed and breakfast because we’ve got bank examiners coming in from different states.

It’s crazy. They spend three, four days in a bubble, we have a special room. They go through every transaction to make sure that we’re not sending money to Russia in a way or the sanction company or whatever it might be. And we have to pass that in order to maintain our license.

So in many respects we’re risk averse. If there’s any gray area, we don’t take the chance because once we lose our license, then we can’t operate as a money transmitter.

Andy Shiles [00:32:24]

All right, so now I’m going to throw you, I’m going to change directions here. All right, let’s, let’s back away from this situation for a moment. We hear about the BRICS initiative, Brazil, Russia, India, China, Saudi Arabia and some others that are striving to not use the US dollar as one of the international currencies for exchange.

From your perspective, how do you deal with that in terms where people are asking for the contracts and they want to be paid and whatever? I guess it’s still the local currency scenario there, but trying to avoid the US banking systems or the Western banking systems and things of that nature, what’s the impact of that on things?

John Min [00:33:18]

Actually there’s no impact at all. Because if you remember I said it was $8 trillion a day that’s bought and sold, the dollar’s involved in about 80% of it. So the other 20% dollar is not involved at all. So our counterpart, our sister company in London, they sell pounds for their customers and buy euros. The dollar’s not involved. They sell pounds and they buy yen. The dollar’s not involved.

Non-dollar trades as I call it, is growing. You’re absolutely right. Now, the implication with that is we do think in the long run the dollar will get weaker. Right now the dollar is very, very strong. Because if you want to buy any commodity products, 99% of the time, they want dollars.

So there is a built in demand for dollars that makes the dollar very, very strong. So that’s why the imports into United States has been surging lately. Because you really do get a great deal if you pay for things by selling dollars and buying local currency to pay your suppliers. Now this, this is a separate topic.

We’re already looking into this, but we can’t get into it. I mean we can just flip the switch. Using stablecoins, crypto, blockchain, you can move money instantaneously around the world. So Brazil has a capital control, China has a acapital control, Argentina has a capital control. It’s really hard to bring money in and out. It takes weeks sometimes you got to do extra paperwork.

With crypto technology, no government can get involved and it will be done instantaneously, transparently. So in theory, we’ve been working on this project. You can sell dollars, stable USD, and then use that to buy stable Indian rupee. And then on the other end, they can sell stable Indian rupee and convert it to local Indian rupee.

That whole transaction will take only 20 minutes, both sides. We can do it, and we actually prototyped, the only problem is we’re waiting for clarification on regulation side and we don’t know when that’s coming.

Andy Shiles [00:35:38]

Well, regulations are usually way behind.

John Min [00:35:43]

Yeah, we’re ready to go last year, but we’re still waiting. I know there’s a bill that’s going through the Senate as we speak that’s tied to marijuana, the decriminalization, all that, but it’s, it’s still very far away.

Andy Shiles [00:35:58]

So what about freight forwarders and the brokers and all of that in your focused on, you know, a key element there where you’re supporting or providing services. What are some examples of how your services are used with the freight forwarders at all?

John Min [00:36:17]

So particularly in the intermodal side. So if you’re moving goods, that requires different modes of transportation. As a freight forwarder or relocation company in the United States, I take the goods from US or household goods, and I’m shipping them over to Germany. But in order to make that happen, you have to pay a shipper. That’s usually in dollars, but someone has to pick it up on the other side.

Now that’s a euro. And then it has to get on the truck, so that’s a euro. And someone has to unpack it, deliver it, that’s also euro. So these custom brokers, the relocation companies, they get all these foreign invoices, every month. And when you put it all together, we’re looking at a couple hundred thousand to million dollars worth of obligation.

Now here’s the problem though. You get these invoices, you have 30 days, 60 days, before you make the payments. If the dollar is gaining, strengthening, that’s good news for you, you’re getting discounts. But if the dollar is weakening or it weakens, then those bills getting more expensive. And that’s the risk that’s involved with dealing with the local currency, the market volatility.

We call it foreign exchange risk. But we can eliminate that by saying we can guarantee a rate today for 30 days, 60 days, 90 days, up to two years by the way, and you don’t have to pay for it, but we just lock it in. That’s known as a forward contract. And a lot of our clients use forward contracts to just eliminate the hassle of the dollar going up, dollar going down.

We guarantee the price that you’d like at that moment and we lock it in and you pay us later when you settle. So that’s the forward contract.

Andy Shiles [00:38:00]

The benefit of that is that it is from a planning perspective, I don’t have to worry about this up and down, but basically you’re taking on that risk of the up and down.

John Min [00:38:12]

Right. And now we can take one step further, which is, well, okay, let me lock in the rate for 90 days out so I don’t have to worry about it. But what if I have a regret 90 days from today because the dollar is doing so well and I have to buy it at the price that I committed to three months ago.

And I’m missing out on what’s happening in the spot market. Well, at that point we can offer optionality to it. We guarantee a price for 90 days, but the 90th day, if the dollar is very well, you can just walk away if you want and just buy it off the spot. By the way, that’s options contract.

Very simple, plain options contract. So a lot of Our clients start using us on a spot transactions and then they want to manage the risk, they go to forwards. And then more sophisticated companies, they use optionality to give the flexibility to say, hey, if this sun is shiny 90 days from today, I’m going to take advantage of it.

But if the dollar weakened dramatically, is raining hard, then I’m protected. I got the umbrella. That’s the optionality.

Andy Shiles [00:39:24]

I, at one point in my career. Well, I had several different things where I was having to. I was dealing with mitigating some penalties on a global basis. I was dealing with some, you know, claims against on a, on a global basis. And so having to literally pay foreign governments or different entities.

And I was watching it and I was literally saying, okay, let’s hold this. It looks like the, the dollar is weakening a little bit. We need to hold off a little bit and see what happens. And then I’d have a job day. It’s like, all right, you know, let’s. We just have to bite the bullet on this. And well, usually it would come, you know, it fluctuates like you said. And then when it surged over like, “do it quick!”

John Min [00:40:12]

No, no, no, no. Actually we call it Kmart. Is it Kmart Blue light sale?

Andy Shiles [00:40:18]

Yeah, there you go. There you go.

John Min [00:40:20]

We have a dedicated account managers. When the dollar rallies significantly, we let all our clients know. It’s like Euro is on sale today. Yen is on sale today. Sometimes you can save another hundred to 150 basis points, and that’s when you lock in for your future obligations. Right.

Andy Shiles [00:40:39]

John, any final recaps here for our audience to. In dealing with it? I mean, one is paying local currency. Two is the. You know, utilizing your shop around as far as the transaction, it sounds like your company is a key player in that. Three is just keeping your eye on the market as far as those kinds of things like you just mentioned.

And four is that your company’s a good entity to have in your arsenal in protecting yourself to make sure you’re not doing business with somebody that you know from a bad perspective on the financial transaction side of things.

John Min [00:41:24]

You summed it up really well. That’s pretty much it. That’s. Yeah, that’s the lesson for today.

Andy Shiles [00:41:31]

No, I love it. Well folks, I’m telling you, we’re going to turn this back over John, what a pleasure to talk with you. I would love to get into some more things at some point and maybe we can have you back and we can get into some more economic news and say, you know, what if cause and effect, all that kind of stuff.

So it’d be great to do that. Lalo, anything from you?

Lalo Solorzano [00:41:53]

No, I actually, again, being naive, I had some other questions. And John, we definitely need to have you on. I wanted to get like lessons learned from COVID that maybe be helping you now because of all the geopolitical stuff, you know, because in logistics and in transportation, in supply chain. Let’s just summarize it through that.

In supply chain, we’ve learned a lot of lessons through Covid that now like this, like the geopolitical issues that are going, like the attacks in the Red Sea are not affecting the, the supply chain as much because of things that we learned from COVID you know, that now our supply chains are more resilient, et cetera.

You know, I’d like to know more, a little bit more about the resiliency of the financial markets as well, you know, just because of things that we might have learned. But we’ll, we’ll save that for the next show.

Andy Shiles [00:42:49]

Got it, John. Thank you, sir. Folks, hope you have a great day and like us, share us. Please, please, please do that. We are growing in popularity because of your listenership and we just love that. With all due respect to everything else on that, I hope you have a fantastic day.

 

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