Optimization of forward points (the difference between the spot and the forward rate for a currency pair) enables companies to take advantage of these differences, which are driven by the interaction between FX and interest rates. However, CFOs are often slow to change their currency management strategies to take advantage of market changes.
When setting their prices with an FX rate, corporates should use the forward rate instead of the spot rate – otherwise, they risk leaving a large amount of money on the table, especially with currencies that trade at an annual forward discount to the dollar.
“When a company sells in a currency that trades at a forward discount, pricing with the forward rate is a disciplined approach that allows managers to avoid arbitrary markups that hurt the firm’s competitive position,” explains Antonio Rami, chief growth officer and co-founder of Kantox.
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