Locking in a future rate has a name: a forward contract. It’s a standard, decades-old tool, not an exotic one. So why does it rarely come up when you pay a foreign supplier through your bank? The answer says more about who’s selling it than about the tool itself.
Your client pays you a fixed Dollar amount. Your overseas supplier is paid in their local currency. You signed off on both sides weeks ago but don’t pay the supplier until later, when the rate may have moved. Your revenue held still but your cost did not.
A company invests half a million US Dollars in a Yen-denominated position. A year later, the investment is up 12%, and the finance team is pleased. But, when they convert back to Dollars, the gain has vanished. The asset performed. The currency exchange rate undid its gains.
You’ve priced a job using today’s exchange rate but you don’t need to pay the supplier until next spring. A forward contract lets you set that rate now, so the number in your budget is the number you will pay. Here’s how it works.
Your bank makes money every time you pay a foreign supplier. Not in fees — in the exchange rate itself. It’s legal, it’s standard practice, and most construction businesses have no idea it’s happening.