Over the years, more than 37K alien species have been introduced to different ecosystems by humans across the globe, according to the Intergovernmental Platform on Biodiversity and Ecosystem Services. Of those, 3.5K have caused negative impacts on the ecosystem, making them “invasive alien species”. This biological invasion is thought to cost the world $423B per year — a number that has quadrupled since the 1970s. Increased globalization and international trade are at the heart of this invasive species phenomenon. These trends are also driving a rising demand for foreign exchange (FX) products to help manage risk related to currency fluctuations. Advances in technological platforms that make trading more accessible have also contributed to this increased demand. In 2024, the US market for FX was valued at $203.3B; it is set to grow at a CAGR of 6.1% to $346.9B by 2033. Whether it is working with foreign suppliers, selling to overseas customers, or running operations abroad, businesses have an increasing need to deal in other currencies.Exchange rate fluctuations can make it difficult for businesses to predict their cash flow when trading with overseas entities. Ongoing global conflicts as well as shifts in trade policies, new and potential tariffs, and supply chain disruptions have contributed to increased currency volatility, making it even more challenging for businesses to manage costs. This is where FX forward contracts — agreements to buy or sell a specified amount of currency at a pre-determined exchange rate, at a future date — can help businesses hedge their risk. The objective of this type of instrument is not to speculate on the future direction of the exchange rate, but to provide predictability and protect businesses from FX risk.Common Misconceptions About FX ForwardsMany community financial institutions (CFIs) are expanding their international banking services, yet some hesitate to offer FX forwards, often due to misconceptions about complexity or demand. In reality, these products can be seamlessly integrated into a CFI’s offerings with the right approach. Some common concerns include the following:
- Perceived complexity. While they may sound complicated, FX forwards are straightforward contracts designed to help businesses manage currency risk — not to speculate on exchange rates. CFIs don’t need a trading desk to offer these products effectively.
- Technology readiness. While some CFIs assume FX trading requires significant system upgrades, many third-party solutions provide cost-effective integration with minimal infrastructure changes.
- Regulatory considerations. Like any financial product, FX forwards come with compliance requirements, but these are manageable with the right expertise or through partnerships with specialized providers.
- Uncertain demand. Despite the increase in international trade, many small businesses aren’t aware of currency hedging or its benefits. As a result, they don’t know to ask for it. Educating customers can create demand for this valuable risk management tool.
Strategies for Adoption
- Simplify implementation through partnerships. CFIs don’t need to build a trading infrastructure from scratch. Fintech providers and correspondent banks offer turnkey FX solutions that integrate seamlessly with existing systems.
- Leverage existing compliance resources. CFIs can work with experienced FX providers to ensure smooth regulatory adherence without excessive operational burden. Many institutions already have frameworks in place for similar financial products.
- Train relationship managers to build confidence. Equipping front-line teams with a clear understanding of FX forwards allows them to proactively identify and assist customers with currency risk.
- Educate your business customers. Once customers who are exposed to FX risk have been identified, CFIs can help them understand the benefits of FX forward contracts in protecting them from currency volatility.
- Offer FX forwards without operational complexity. Working with a correspondent bank, such as PCBB, enables CFIs to provide FX forwards without as many administrative hurdles as an in-house solution.
Offering products such as FX forwards to customers with an increasingly global business greatly enhances a CFI’s ability to serve their business customers and retain them as they grow. By partnering with a specialist provider, such as a correspondent bank, investing in technology and training, and strengthening compliance processes, CFIs can safely and confidently bolster their international offering and compete against larger institutions.
