Whether dealing in U.S. dollars or in a foreign currency, every international transaction has inherent risks such as country risk, risk of non-payment from foreign buyers, risk of non-delivery from foreign suppliers, and, when a foreign currency is involved, foreign exchange risk. Santander Bank, N.A. (“Santander”) is prepared to assist your company in mitigating these risks.
Country Risk is the risk of investing in a foreign country. It includes all the risks that are specific to the country and that will affect the local companies’ transactions with foreign investors. It includes political risk, economic risk, or transfer risk, which is the risk of the government or central bank not allowing capital to move out of the country. There are insurance policies from the Export-Import Bank of the United States Ex-Im Bank and some private insurers that can protect an exporter against the occurrence of these events.
Payment risk is the risk of not getting paid or getting paid late by your buyer. Delivery risk is the risk of your foreign supplier not being able to fulfill its side of the sales agreement.
Ideally, your company would diminish these risks by selling under cash in advance terms or buying on open account. However, when these are not possible, you can also reduce the risks of non-payment and non-delivery of a certain transaction by using a different payment method such as Documentary Collections and Letters of Credit.
Currency or Foreign Exchange FX risk occurs when a US company buys or sells in a currency different than US dollars, and is generated by the volatility of the price of one currency against the other.
Santander is prepared to assist your company in mitigating currency risk with centralized trading desks in NY and Madrid, and sales desks in NY, Madrid, London, and Latam Centers. Santander’s staff of experienced Foreign Exchange advisors will work closely with you to identify risks and design appropriate trading strategies to effectively manage them. Santander Bank offers you a wide array of products to protect your company against adverse currency movements, including spot contracts, forward contracts, or option contracts
A spot transaction is a contract to buy or sell a fixed amount of foreign currency at a fixed price for a settlement that is typically two business days. It is the simplest way to make a Foreign Exchange trade as your company will only have to provide the currency pair and the notional amount and Santander will offer you an exchange rate. Although FX spot trades typically involve a foreign currency exchanged for U.S. dollars (USD), currency “crosses” (transactions with two non-USD currencies) are also traded.
You may initiate a spot contract either by phone or online.
A forward contract is a contract to exchange two currencies at a specific time in the future (settlement date) at a rate fixed in advance (forward rate). Forward contracts are commonly used by companies who want to avoid the exchange rate risk since they can “lock-in” the value or cost of a Foreign Exchange exposure today for future settlement. At the settlement date, both Santander and your company are obligated to make the exchange regardless of where the market rate has moved in that time.
You can agree with Santander either by phone or online to the terms of the trade, including the currency pair, notional amount, exchange rate, and settlement rate. It will be a forward window contract when the maturity date is not fixed and the forward contract works for a specific period of time.
If you would like to lock-in a non-convertible currency (such as the Chinese Yuan, Indian Rupee, or Brazilian Real) Santander can offer you a Non-Deliverable Forward. This is a very convenient way of hedging exposure in emerging market currencies where conventional forwards are restricted or do not exist.
Currency options give you the right, but not the obligation, to buy or sell a fixed amount of foreign currency at a specified exchange rate (strike rate) on or within a specified time period (maturity). With a currency option, you can decide whether to exercise the option and exchange the currency at the strike price, or make the exchange at the spot rate if this one is more favorable than the strike price. In return for the optionality, you will pay an upfront premium, usually priced as a percentage of the notional amount.
You can agree with Santander either by phone or online to the terms of the trade, including the currency pair, notional amount, expiry date, and option strike.
Spot Delivery | Forward | Forward Windows |
Australian Dollar Canadian Dollar Swiss Franc Euro British Pound Japanese Yen Mexican Peso Czech Koruna Danish Krone Hungarian Forint Norwegian Krone New Zealand Dollar Polish Zloty Swedish Krona Hong Kong Dollar Singapore Dollar Thai Baht Turkish Lira South African Rand Romanian Leu Argentine Peso Brazilian Real Chilean Peso Colombian Peso Indian Rupee |
Australian Dollar Canadian Dollar Swiss Franc Euro British Pound Japanese Yen Mexican Peso Czech Koruna Danish Krone Hungarian Forint Norwegian Krone New Zealand Dollar Polish Zloty Swedish Krona Hong Kong Dollar Singapore Dollar Thai Baht Turkish Lira South African Rand Romanian Leu |
Australian Dollar Canadian Dollar Swiss Franc Euro British Pound Japanese Yen Mexican Peso Norwegian Krone New Zealand Dollar Swedish Krona |