Foreign Currency Account
Danish companies selling to the eurozone often open this to avoid conversion fees.
What is a euro account?
This clause ties the invoice price to the exchange rate.
What is a currency clause?
The buyer deposits the invoice amount before delivery.
What is advance payment?
This agreement fixes a future exchange rate with a bank.
What is a forward foreign exchange contract?
Unlike forwards, this allows both protection and upside potential.
What is an option?
This method is best when a company often trades in the same foreign currency.
What is using a foreign currency account?
If the buyer’s currency weakens, what happens to the amount they must pay?
What is they pay more in their local currency?
Buyers usually get this benefit in exchange for advance payment.
What is a cash discount?
The fee the bank charges for taking exchange rate risk.
What is a premium?
Buying raw materials in GBP while selling to UK customers is called this.
What is currency matching?
What risk is eliminated when trading in euros due to Denmark’s exchange rate policy?
What is exchange rate risk
This type of clause allows for a set “band” of exchange rate fluctuation.
What is a price adjustment clause?
What type of account is often used to hold advance payments securely?
What is an escrow account?
What is the difference between the spot rate and the forward rate?
What is the time of settlement
What is the main disadvantage of options compared to forwards?
What is higher cost
True or false: A euro account is considered a formal hedging method.
What is false?
Who bears the risk if the contract contains no currency clause?
What is the seller
Why might a seller demand advance payment?
What is buyer’s currency is very volatile?
Which currencies are especially relevant for forward contracts with DKK?
What are GBP and USD?
In currency matching, what condition must be met to avoid risk?
What is inflows and outflows must be of similar size and timing?
Name one disadvantage of using a foreign currency account.
What is limited usefulness if trade is not in that currency?
What’s the main drawback for the seller when adding a currency clause to a quote?
What is reduced competitiveness / buyer resistance?
Name one disadvantage for the buyer of advance payment.
What is tying up capital / higher risk before delivery?
What is the biggest disadvantage of a forward contract for the seller?
What is no benefit if rates move favorably
If a seller buys an option but the market moves in their favor, what choice do they have?
What is they can ignore the option and use the spot rate?