Amanda Clare and Erik Miller, Foreign Exchange Specialists
From Cabernet to Chardonnay, Albariño to Zinfandel, Americans now drink more wine than any other nation, consuming 893 million gallons each year. U.S. wineries now account for eight percent of the world’s wine production1 and represent the largest market for wine barrels, which are regularly imported from Europe.2
With this international market for supplies and sales, nearly all U.S. businesses involved in the wine industry will, at some point, have to contend with foreign currency considerations. In some cases, currency values might change abruptly, increasing the costs of imported products. In other cases, a foreign vendor might request an invoice in their local currency, creating last minute changes to standard payment terms. Whatever the situation, developing a proactive strategy to manage exchange rate exposure can help prevent financial surprises.
Tactics to help manage your international transactions
- Price in local currency
- Initiate foreign payments in local currency
- Know the U.S. dollar exchange rate
1. Price in local currency
When working with international suppliers, it is often a good idea to request prices in both U.S. dollars and local currency. This can help you identify the most cost-effective payment option.
For example, when asked to provide invoices in U.S. dollars, foreign vendors will often increase their prices to protect themselves against unfavorable fluctuations in the exchange rate. By asking for invoices in local currency, exchange rate considerations may be removed as potential obstacles in negotiating improved pricing.
2. Initiate foreign payments in local currency
When making an international payment in U.S. dollars, you are dependent on a third party to convert the funds into local currency. As a result, you lose visibility into the exchange rate applied until after the transaction is complete. Unfortunately, you may end up underpaying or overpaying a vendor in their local currency due to exchange rate movement.
One way to avoid this issue is to initiate the payment in foreign currency. This ensures that the vendor is paid in full, never more or less. Working with a foreign exchange specialist at your financial institution, you can convert the funds upfront, reducing uncertainty around the amount of foreign currency that will be delivered to your beneficiary.
3. Know the U.S. dollar exchange rate
Understanding the U.S. dollar’s value against a country’s currency is another way to help you manage currency risk. A strong U.S. dollar can boost your purchasing power. A weak U.S. dollar may increase your expenses.
For example, in the two years between May 2014 and May 2016, the U.S. dollar appreciated against the euro by as much as 25 percent. On a 50,000 euro purchase, this could have equated to as much as a $17,500 savings.
|EUR Amount Billed||Exchange rate||USD Cost|
Transact with security and confidence
When it’s time to make an overseas payment, wine businesses can benefit from the convenience of online banking. Today’s sophisticated bank portals put real-time exchange rates, account balances, wire transfer capabilities, and more at your fingertips. Whether you’re in the field, the tasting room, or even on the road, you have 24/7 access to your finances. There is no need to make phone calls, send faxes or drive to the bank.
Just as creating an award-winning wine takes the best grapes and an expert wine maker, there is no substitute for the tools and expertise that a dedicated banker, foreign exchange specialist, and global financial institution can provide. Working together, these resources can help you reduce uncertainty, minimize risk, and compete effectively at home and abroad.
1 The Wine Industry, 2015
2 Wines & Vines, “Strong Barrel Sales Herald Strong Industry,” by Andrew Adams, February 2015