Introduction
Is living in a globalized world good or bad? The right question to generate an interesting debate in any meeting, whether with friends or professionals from any sector.
On a professional level, it is clear that globalization allows us to access customer or supplier markets that we could not even imagine a few years ago, in addition to being able to obtain fairly complete information about any client or supplier that contacts us, but also It forces us even more, if possible, to search for perfection in the management of our margin.
The euro zone, which seemed like the “non plus ultra” when we accessed this currency, has become too small and import/export operations in foreign currencies are increasingly numerous.
Precisely for this reason, when we carry out this type of operations we have to coexist with 2 important concepts: country risk and exchange rate risk.
Risk country
Country risk does not refer exclusively to the possibility of non-payment of bonds and obligations issued by public or private companies in a country, but also to the impossibility of payment or significant delays on the part of our clients, or the possible contractual breach of our suppliers. . Analyzing and understanding the commercial environment of the markets where we intend to address is essential to try to minimize risks in making business decisions.
At our disposal, we have periodic publications prepared by JP Morgan, Moody's, Standard & Poors (S&P) or Fitch, and the more than interesting monthly report from Dun & Bradstreet: Country Risk Ratings. At the national level, we have CESCE (Spanish Export Credit Insurance Company), majority owned by the State, which, in addition to providing information on country risk, makes available instruments that provide coverage for contingencies that may arise due to said risk. :
- The Supplier Credit: Insurance that covers the exporter against the risk of non-payment of the contract or termination of the contract by the client, due to commercial aspects or political risks. Furthermore, the exporter has the power to designate a Financial Entity as beneficiary of his rights to insurance compensation, which can help him obtain bank financing.
- The Insurance Bond for Exporters: This policy is designed for those operations in which the Spanish Exporter must provide a bond, derived from an export contract, to the foreign buyer or authorities of the country. It covers the Exporter against the risks of improper execution of the bonds by the foreign contractor. It also covers the risk of execution of the guarantee or bond due to the impossibility of complying with the obligations of the contract as a result of situations of political violence, catastrophic events, measures of the Spanish or foreign government, etc.
- Investor Insurance: offers coverage to Spanish companies that make investments abroad through:
- the creation of a foreign company
- the acquisition of an existing foreign company
- or participation in the capital increase of the foreign company.
Exchange rate risk
Exchange rate risk in our commercial transactions is the possible loss in our cash flows, as a consequence of currency fluctuations, which would further reduce our usually tight margins.
Therefore, we cannot and should not ignore the need to have a coverage instrument in the event of this contingency.
There are many instruments: options, futures, swaps, and we can delve deeper into them, but the most immediate and simple to manage is exchange or forward insurance.
With the exchange insurance at the time the forward currency contract is signed (that is, the exchange rate), the delivery of the currencies will be made within the agreed period, at the already predetermined exchange rate, regardless of the fluctuation Of the same.
There are several types:
- Fixed price exchange insurance: The sale of the currency is agreed on a specific date and at an exchange rate.
- Exchange insurance at flexible price: The sale of the currency is contracted on a specific date and at a specific exchange rate. However, if the change in the expiration date in the market is more beneficial for our company, the more favorable change will be applied.
- Temporary fixed price exchange insurance: With a forecast of what we are going to bill for a year and we contract a fixed exchange rate for the entire year for that amount.
This product is not only available in Financial Entities, but we can also go to specialized fintech companies, such as Moneycorp, and in any case, always compare their commissions for contracting.
For the above, although it is a truism, in the face of a business opportunity in the international market: INFORMATION AND COVERAGE. Let's not look the other way, and jump in without the proper parachute to protect ourselves from the risks mentioned.
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