In this use case we present a comprehensive analysis of cross-border transactions conducted by a global bed bank operating in LATAM, Europe, and select Asian markets. Focusing on Q2 2023 and considering 60-day payment periods, we highlight the potential losses incurred due to currency fluctuations. We delve into the findings from our analysis, explore the losses experienced in various currency pairs, and discuss how integrating cross currency solutions can help bed banks minimize future losses and enhance their financial performance.
Analysis of Cross-Border Transactions
During Q2 2023, our analysis revealed the impact of currency fluctuations on a global bed bank operating in LATAM, Europe, and select Asian markets. Let's dive into the findings:
Mexican Peso (MXN): The MXN exhibited strength, gaining an average of 3.7% against the USD. However, the bed bank's transactions involving $2,000,000 received from travel agents in USD and paid to hotels in MXN resulted in a significant loss of $73,536 from the bed bank's profit.
Brazilian Real (BRL): Similar to the MXN, the BRL experienced a 3.5% appreciation against the USD. The bed bank's transactions involving $1,500,000 in Q2 2023, with USD received from travel agents and paid to hotels in BRL, incurred a loss of $52,268 from the bed bank's profit.
Japanese Yen (JPY): The USD demonstrated strength, gaining 3% against the JPY. The bed bank's transactions, involving the receipt of JPY from travel agents and payment in USD to settle hotel bills, resulted in a loss of $60,147 from the bed bank's profit.
Hungarian Forint (HUF): The HUF showcased remarkable strength with a 3.1% surge against the USD. Despite conducting transactions worth $1,500,000, involving the receipt of USD from travel agents and payment in HUF to hotels, the bed bank incurred a loss of $46,265 from its profit.
Polish Zloty (PLN): The PLN experienced an impressive 3.9% appreciation against the USD. The bed bank's transactions, involving the receipt of USD from travel agents and payment in PLN to hotels, resulted in a loss of $31,366 from the bed bank's profit.
Solution: Integrating Embedded Cross-Currency Solution for Mitigating Currency Risks
To minimize potential losses and protect the bed bank's profitability in the face of currency fluctuations, we recommend integrating an embedded cross-currency solution. Here's how it can help:
Proactive Hedging: embedded cross currency solutions enable bed banks to proactively hedge against currency risks by locking in exchange rates, even for future cancellations. This empowers bed banks to shield themselves from adverse currency movements and provides stability in pricing, mitigating potential losses.
Local Collection: cross currency solutions facilitate local collection while receiving payments in the functional currency. This feature simplifies transactions for bed banks and their customers, eliminating the need for multiple conversions and reducing associated costs.
Multiple Bank Accounts: embedded cross currency solutions allow bed banks to open and manage multiple bank accounts. This feature enhances operational flexibility and provides bed banks with the ability to optimize currency exchange and settlement processes efficiently.
Farewell to Markups: By utilizing cross currency solutions, bed banks can say goodbye to markups and offer better prices for their customers. By eliminating the need for excessive markups to protect against currency fluctuations, bed banks can provide more competitive pricing and enhanced value to their customer base.
The analysis of cross-border transactions for a global bed bank operating in LATAM, Europe, and select Asian markets during Q2 2023 highlights the potential losses incurred due to currency fluctuations. However, by integrating Grain's embedded cross-currency solution, bed banks can proactively manage currency risks and protect their profitability. By hedging against adverse currency movements, bed banks can minimize future losses and enhance their financial performance.
To explore how Grain can assist businesses in eliminating FX risk, enhancing satisfaction, boosting conversion, standing out from the competition, and enjoying zero integration fees, book a demo today.