- Allows you to exchange currency at the market rate in effect.
- Spot currency trades settle within two business days.
- These transactions can be carried out online via Internet Banking Solutions.
Any company that does business internationally is exposed to risk due to fluctuating currency exchange rates. Protecting your profit margins is vital, and National Bank can help.
1-888-394-4494 (toll-free)
Open from 8 a.m. to 6 p.m.
When you issue or receive a payment in a foreign currency, the exchange rate may be very different from the rate you expected when you signed the contract with the other party. Make sure you have the products you need to protect your interests.
1. International sales contract
You sign a contract stipulating that you will be paid in a foreign currency. At the current exchange rate, your sales revenue will be $200,000. When you factor in $150,000 for manufacturing costs, your profit margin will total $50,000, or 25%.
2. Currency decline (unfavorable)
You're worried your profit margin will disappear.
3. Currency increase (favorable)
The situation is reversed: the value of your sales converted into CAD increases.
4. Delivery
You deliver your product to a foreign company. Although the currency has declined slightly, your profit margin remains satisfactory.
5. Receipt of payment
The currency has plummeted since you delivered the product. After currency conversion, your sales revenue is just $180,000, bringing your final profit down to $30,000, or 15%. The value of the currency could also have increased and profited your company. A hedging strategy can prevent this uncertainty.
The original exchange rate is 100% locked in.
The final exchange rate is locked in, but within a range rather than a single rate.
Provides 100% protection against a rate drop, but lets you benefit from a rate increase (a premium is charged)2.
1. Buying materials abroad
You have signed a major contract that requires you to buy production materials in foreign currency. Your sales revenue will be $200,000 CAD, and your sourcing costs at the current exchange rate will be $150,000 CAD, resulting in profits totaling $50,000 CAD or 25%.
2. Currency decrease (favorable)
The materials will cost you less in Canadian dollars if you buy them now.
3. Currency increase (unfavorable)
The value of the materials in Canadian dollars has increased. You worry that this increase will reduce your total profits.
4. Approaching payment due date
Production is going well, but the value of the currency continues to rise, and the payment due date is approaching.
5. Payment due
Your materials will cost 15% more than expected. After currency conversion, your sourcing costs are $180,000, leaving you with total profits of just $30,000, or 15%. The value of the currency could also have decreased and profited your company. A hedging strategy can prevent this uncertainty.
The original exchange rate is 100% locked in.
The final exchange rate is locked in, but within a range rather than a single rate.
Provides 100% protection against a rate increase, but lets you benefit from a rate decrease (a premium is charged)2
Need advice?
To learn more, speak with your financial advisor and download our guide, created in partnership with HEC Montréal.
This transaction provides the same benefits as the forward and the
range forward, but over a longer period; very useful to protect
recurring transactions.
National Bank of Canada wishes to inform you of the regulation governing the trading and reporting of swaps and other OTC derivative instruments in Canada (the “Reporting Regulations”).
Since October 31, 2014, market participants must report their transactions to provincial regulation entities in Quebec, Ontario and Manitoba. Regulation has been extended to all provinces and territories since July 29, 2016.
Level 2 data required by LEI issuers
New form requested by LEI issuers
Obtaining a Legal Entity Identifier ( “LEI“)
All participants in the OTC derivatives markets in Canada must obtain a LEI (Legal Entity Identifier) in order to comply with the Reporting Requirements. You will therefore be required to obtain a LEI in order to maintain your trading activities with National Bank.
To obtain your LEI, you must follow three easy steps:
Please note that the processing time of your LEI request may take five (5) to ten (10) business days through GMEI Utility and two (2) business days through Bloomberg LEI. National Bank of Canada will ask for your LEI and other factual information through the trade facility opening or renewal process.
Check out our directory of resources for reference websites
You can contact GMEI by email at CustomerService@GMEIutility.org
You can contact Bloomberg LEI by email at lei-support@bloomberg.net
Since their system does not allow you to answer to their replies, we recommend that you write all your questions in your initial email.
National Bank of Canada acts as a Market Participant, as defined in the FX Global Code (“Code”), and is committed to conducting its FX Market activities in a manner consistent with the principles of the Code. We are publishing the following disclosure statement to inform our clients and counterparties of how we conduct activities on the FX Market.
"The best exchange rate is one that allows entrepreneurs doing business abroad to earn their expected profits."
"The volatility of the Canadian dollar certainly has its share of challenges, however, it can also create new business opportunities."
"A company is vulnerable to foreign exchange risk when the value of its transactions and investments, not to mention its viability, are affected by currency rate fluctuations."
Looking for products and services to help you manage foreign transactions?
1 This image does not reflect actual values and is intended as an example.
2 Prices for this service may vary. Please contact your Account Manager for more information.