How to manage currency fluctuations as an International entrepreneur in ASEAN?

International business in the ASEAN region offers significant opportunities for economic growth, but it also presents specific financial risks. One of these risks involves currency fluctuations. Exchange rate movements can increase costs, erode margins, and affect competitive positioning.
This article outlines how international entrepreneurs can effectively manage these risks, with a focus on trade between the ASEAN region and Europe.

1. Characterizing currency risks

The first step in effective currency management is understanding the different types of exposures:

1. Transactional Risk: Arises from payments or receipts in foreign currencies. For example, purchasing in Malaysian Ringgit (MYR) and selling in euros (EUR).
2. Economic Risk: Concerns the long-term impact of exchange rate movements on a company’s competitiveness.
3. Translational Risk: Occurs when consolidating financial results of foreign subsidiaries into the home currency.

For entrepreneurs purchasing products or services in ASEAN countries and selling in Europe, transactional risk is particularly dominant.

2. Pricing strategy: managing currency risk at the source

Smart pricing arrangements can prevent much of the currency risk:

1. Trade in Strong Currencies: Many suppliers in the ASEAN region accept payments in USD or SGD. Conducting transactions in such currencies limits exposure to volatile local currencies.
2. Currency Clauses: Purchasing contracts can include clauses allowing price adjustments in the event of significant currency fluctuations (e.g., a movement greater than 5%).
3. Local Pricing: If selling also occurs within ASEAN, it may be wise to set selling prices in local currencies to further reduce foreign exchange dependence.

Structuring currency agreements in contracts captures a significant portion of the risk upfront.

3. Financial structure: Multi-currency banking

A modern financial structure can make a substantial difference:

1. Multi-Currency Accounts: Many banks and international institutions offer accounts that manage multiple currencies.
2. Strategic Timing: Holding foreign currencies in the account and converting them only when exchange rates are favorable enables active currency management.
3. Direct Payments: Currencies can be used directly for payments without incurring double conversion fees.

Such infrastructure provides entrepreneurs with flexibility and cost advantages in international transactions.

4. Hedging: Actively covering currency risks

For larger transactions or long-term agreements, actively hedging currency risks is necessary:

1. Forward Contracts: These lock in an exchange rate today for a payment or receipt at a future date.
2. Currency Options: These provide the right, but not the obligation, to exchange currencies at a predetermined rate on a specified date.
3. Natural Hedging: This occurs when both revenue and expenses are in the same currency, such as organizing both purchasing and selling in USD.

Hedging reduces uncertainty and protects margins, especially during periods of high market volatility.

5. Monitoring and adjustment: An ongoing process

Currency management is not a one-time activity; it requires ongoing attention:

1. Regular Evaluation: At least monthly, currency exposures, open positions, and market conditions should be assessed.
2. Use of Reporting Tools: Banks and fintech platforms often offer real-time dashboards and analysis for currency risk management.
3. Price Adjustments: In the case of structural exchange rate changes, it may be necessary to revise selling prices to protect margins.

An active monitoring strategy prevents unnoticed accumulation of currency risks.

6. ASEAN-specific considerations

The ASEAN region presents some unique characteristics:

1. Many ASEAN currencies (such as MYR, VND, IDR) are relatively volatile against USD and EUR.
2. International transactions often default to USD, even when that is not the local currency.
3. Some countries impose restrictions on foreign exchange trading; local expertise and partnerships with experienced banks are essential.

A focus on USD transactions and collaboration with reliable financial partners is an effective strategy in this region.

7. Tips for small business owners

Not every entrepreneur has access to complex hedging products or international banking structures. Still, there are simple ways for small businesses to manage currency risks:

1. Use Fixed Payment Terms: Avoid long payment terms in foreign currencies. Faster payments reduce the risk of interim exchange rate fluctuations.
2. Leverage Fintech Solutions: Platforms like Wise Business or Revolut Business offer low-cost multi-currency accounts and simple exchange rate alerts.
3. Invoice Promptly and Link to Current Rates: When exporting, quotes or invoices can be tied to a daily exchange rate, limiting risk exposure.
4. Spread Payments: Instead of transferring one large amount at once, paying in smaller tranches spreads currency risk over multiple points in time.
5. Build a Currency Buffer: When setting selling prices, include a small margin to absorb exchange rate fluctuations.

For smaller companies, the key principle is: keep it simple, stay transparent, and recognize risks early.

Conclusion

Successful international business in the ASEAN region requires not only market insight and entrepreneurship but also a structured approach to managing currency risks.
By establishing clear pricing agreements from the outset, setting up a flexible financial infrastructure, utilizing hedging instruments, and continuously monitoring developments, entrepreneurs can protect their profit margins and ensure their financial stability.

In an increasingly globalized economy, professional currency management is no longer a luxury—it is an essential part of achieving sustainable international success.