|
Here are some alternatives to doing business exclusively in dollars:
The dollar is constantly in flux, gaining or losing value against the world's major currencies. That poses a dilemma for the growing
number of small businesses that trade overseas. Dealing with such fluctuations may seem arcane, the concern of multinational corporations
and hedge funds. But small companies need to be just as savvy -- or risk a hit to the bottom line.
Most small businesses that trade abroad opt to do nothing. Indeed, currency traders estimate that 80% of small outfits that do business
overseas trade exclusively in dollars, compared to 50% of large companies. If your global dealings are minimal, it's not necessarily a bad
idea, says Bahram Yusefzadeh, CEO of Phoenix International, an Orlando (Fla.) financial services and software company. Doing nothing
certainly is easier than converting your dollars.
That doesn't necessarily mean it's safe, cautions Ronald Z. Szoc, senior vice-president of Ruesch International, a Washington (D.C.)
financial services firm specializing in international currency issues. "You're maximizing your risk, because you could underpay or overpay
if you're trading exclusively in the dollar," he says.
Consider the euro. It has fallen by about 18% against the dollar since its launch in January, 1999. If you price your goods in dollars
-- without taking into account the euro's decline -- they could become too expensive for European buyers. Meanwhile, if you're importing
from Europe and paying in unadjusted dollars, you've just handed your suppliers an 18% bonus.
Says Fran Berndt, a first vice-president at Ruesch: "The only time it makes sense to pay in U.S. dollars is when you're billed in U.S.
dollars." If a substantial percentage of your business dealings are abroad, it's worth considering the palette of currency risk-management
tools that are available from your bank:
A basic electronic funds transfer costs between $7 and $15 and can be done by almost any bank for the occasional international
transaction. If you trade more than that, another option is to create a separate holding account for foreign currency. Let's say you do a
lot of business in Japanese yen. When the dollar weakens, you purchase as many yen as you think you'll need to cover your upcoming
transactions. The risk? Opening a holding account costs money and ties up your capital. Moreover, your market timing may be off. You could
end up paying a lot more than if you had waited till you needed the yen.
A more complex and expensive option is to use what are known as "forward contracts." Such transactions allow you to lock in a rate that
should be more favorable to you than the rate would be if you were to make the exchange in the future. Forward contracts are particularly
useful when you know you are going to need to make a payment in a foreign currency at some specific point in the future.
Pricing on forward contracts depends on the financial institution, but typically will require a deposit on the amount of the contract
and an interest rate. You can get a forward contract from three days to up to a year out. The longer the contract, the more it costs. In
addition to costs, forward contracts tie up capital, so make sure you trade in sufficient volume to make the option worthwhile.
If you do substantial business abroad, consider setting up an overseas office. Handle all expenses and collect revenues in local
currency, suggests Les Halprin, CEO of Integrity Solutions, a Chicago-based developer of software that helps businesses manage their
currency trades. "Look at the revenues you expect from each country you operate in, and pay costs as much as possible there," he says. You
can also borrow in the local currency for working capital.
Ultimately, the way you choose to leverage the dollar against other currencies depends on the type of business that you're in, and your
tolerance for risk. But you may be missing opportunities if you're doing business only in dollars.
By
Alison Stein Wellner
in Newark, Del.
| 
