What SMEs should be aware of when trading in restricted currency markets

However ripe-for-the-picking these opportunities might be, there are some key considerations that must be made before venturing into new markets, especially those that operate under foreign exchange controls.

Exporting businesses should be aware of the obstacles that might arise in restricted currency markets, and develop a plan to manage any potential risks.

Government restrictions

Before any business starts trading overseas, it is important to check if there are any government restrictions in the country of choice. Some countries apply restrictions on the movement of funds, which can affect the trading process.

An example of these types of restrictions can be seen in Columbia, where the government has very strong rules in place to protect the economy from money laundering and illegal trading. Common in countries where narcotics trade is prevalent, these restrictions allow the Colombian government to keep a close eye on the movement of money in and out of its borders.

A business operating in a market with government restrictions will need to be aware of potential delays when making currency transfers. For example, a business exporting to Brazil could find that it has to wait for around three to four days for a currency transfer to process – simply due to the checks that need to be made.

It is important to keep this in mind when developing a foreign exchange strategy, as your plan will need to account for the delay in the transactions and the knock-on effect it might have on other elements, such as the currency conversion rate associated with the trade.

Closed currency markets

A closed currency market means that it is not possible to trade currency outside its country of origin, meaning that foreign exchange transfers must be made within the nation. These types of markets can be found in Morocco, India, Vietnam, Cuba and Tunisia.

Using Morocco as an example, the nation represents some very promising trading opportunities for British businesses, particularly within the tourist industry and financial services. In fact, the Casablanca stock exchange is the second largest in Africa. However, if you were looking to trade with Morocco, you would have to take very specific considerations into account when creating your foreign exchange strategy.

Morocco’s closed currency market means that a business can transfer Moroccan dirhams into the country, but cannot transfer them out. So, if you are a holiday tour operator based in the UK and are expecting a payment in dirhams, you will need to make specific arrangements for this process with your foreign exchange provider.

Businesses looking to operate in the common UK import/ export market of India will experience similar restrictions – so it is important to consider the necessary international payments arrangements when exploring new business opportunities here too.

It is possible to trade most currencies freely around the world, but when dealing with closed currencies it is just worth bearing in mind the adjustments required and ensuring they form a part of your business’ foreign exchange plan. You should always check with tools like XE.com that monitor’s foreign currencies in real time.

Image source

Share this story

Close
Menu
Send this to a friend