The Right Financial Services For Dealing With Settlement Risk

If you are in the midst of coming up with a settlement agreement with a fellow business partner or other party and it involves the use of foreign currency exchange, one of the things you will also want to have in place is the right way to deal with settlement risk.

After all, while contracts are readily agreed upon, there is often little guarantee that they will come to pass. Especially if you are dealing with people who have not honored some of their agreements in the past.

This is why, before you agree to any contract that includes foreign currency exchange, you need to have found the right default risk solutions for helping you deal with the settlement risk.

The two forms of settlement risk — When it comes to the dangers of settlement risk many people concentrate on the financial one. The idea that you may not get the money you were promised.

There is another form of settlement risk that involves foreign currency exchange you also need to take into account, however, and that is the one of timing.

This is due to the fact that the person you entered into the contract with may still be planning on honoring the agreement, but not in the time agreed upon. This can immediately cause a credit or liquidity problem for you if you do not receive the money you were counting on.

Finding the right financial services for dealing with settlement risk — One of the first ways to help ensure you do not have to deal with someone reneging on a deal with foreign currency exchange is to make sure you have an efficient and safe payment system in place.

Making payment easy and safe to do will often be that final thing that pushes a would-be defaulter into the land of satisfied payer. Make sure the financial company you are dealing with to handle payments is reliable, stable and professional, however, as well.

Foreign exchange risk — One of the main areas where settlement risk is the most dangerous is in the area of foreign exchange.

Several international banks have collapsed because of it and, if this is something you will be involved in with your agreement, you need to be using the right financial services to limit risk.

This is why using the CLS Bank for dealing with foreign exchange trades is the best way forward for you if you are worrying about settlement risk.

The benefit to using CLS is that when both trades go through, the transactions of both currencies go through at the same time and are immediate and final at the same time. This ensures one party does not end up with the exchange being successful on their end while the other’s foreign currency exchange collapses.

This is set up by having both agreement members pay into the CLS bank at an agreed upon time on a particular day. The money transferred via foreign exchange is then not sent to either party until both parties have deposited the agreed upon amount.

This immediately completely eliminates settlement risk for both parties.

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