Many companies rely on banks to provide all their financial needs. While this is convenient, banks may not be the best providers of Forex risk management services.

Any time a company does business internationally, they deal with currency risk caused by forex volatility. There is no shortage of stories about currency headwinds and the direct impact on companies’ bottom lines. This is a situation that is not going to change. Last year’s dollar surge is likely to be just the beginning of a period of increasingly volatile financial markets, including Forex.

Once your company has made the decision to explore hedging, the natural first move is to utilize an existing banking relationship. Since your bank already knows you and your business, this may seem like a convenient solution. However, there are important reasons why your bank may not be the solution you’re looking for.

Major disadvantages of using a traditional bank to hedge Forex risk:

• The first major disadvantage of using a traditional bank to hedge forex risk is the high cost of the services. Banks usually charge hefty fees for their forex hedging services, including transaction fees, margin requirements, and upfront fees.
• ‍Lack of flexibility in the products offered. Banks typically offer a full range of forex hedging products, such as forwards, options, and swaps, but banks are generally geared to the needs of large corporate clients. The solutions they offer may not be available or suitable for smaller companies.
• The complexity of the processes involved. Effective hedging requires a high level of expertise and it’s always difficult to know if the products being offered will actually solve the problem. You may need to invest a lot of time and resources to understand what your bank is doing.
• The potential for conflicts of interest. Banks may have their own forex positions, which can create a conflict of interest when providing forex hedging services to their clients. Banks have a duty to act in their clients' best interests, but the potential for conflicts of interest is always present.
  
• Banks are subject to various risks, including credit risk, liquidity risk, and operational risk, which can impact their ability to provide forex hedging services. If a bank becomes insolvent, for example, it may not be able to fulfill its obligations to its clients. Recent developments in the banking industry have brought this concern to the fore.

Takeaways:

• Know in advance how much of your time will be spent implementing and monitoring your hedging. With the wrong partner it may be a lot more than you were expecting.
• Know the real cost of hedging. Banks are notorious for surprise charges and hidden fees that inflate your costs.
• Consider going to a hedging expert. For most banks, hedging is a sideline, not their core business. 

The solution: Pangea Prime™

You don't have to deal with high-priced, big-business banks to hedge forex risk. Picture choosing from a menu of advanced hedging strategies that are easy to understand, are customizable, and are quick to mirror market activity. That’s what Pangea Prime offers.

And with Pangea, pricing is fair and transparent. Our mission is to provide you with a custom-tailored, Ai-based solution that meets your FX risk, timeline, and budget, all at the speed of the markets. 

Schedule a demo today and discover how to get the predictability and control you deserve in your business.

Pangea Prime: Predictable, simplified FX management.

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