Paying in a foreign currency for goods may feel like an exotic venture for many consumers. However, it is a practice that comes with formidable risks if you’re not aware of the implications. In our globalized market system, we can purchase goods worldwide. This usually involves a currency exchange between your national money and that of the merchant.
While you may pay less for a product buying it from a foreign land, the transaction fees could have you pay more. That doesn’t happen when you use Paxum and transfer funds internationally with the best payment solution. But if you use traditional payment methods, you expose yourself to the following risks!
- Transaction Risks
The first and most prominent risk of paying in foreign currencies is the transaction risk. This involves cross-border money payments for goods you purchase outside your country. As a result, international law governs your purchasing power. And it dictates that the selling price will be dominated by the seller’s currency.
In some cases, what you see is what you get, meaning your final charge is the cost on the vendor’s website. However, you may also pay extra in the seller’s currency due to monetary appreciation. This price exposure could substantially enhance the final cost of the purchase. And, if you’re not using a settlement-friendly e-payment system, you will have to pay far above the initial price.
- Translation Risks
Buying products or services from the other side of the world could pose additional risks to the currency exchange one. For example, you may find yourself lost in translation, which results from a significant discrepancy between languages and definitions. You may use automatic translator software, but the translation will not always correspond to the seller’s initial attempt at communication.
Generally, consumers lose money thinking they found a “too good to be true” bargain on an overseas website. Suppose you’re looking to purchase soft drinks, which come in packs of 6 cans in your country. You may find that a merchant from a different nation has listed the 6-pack at the price of one can. The translation of the product description may clearly state that you are purchasing the entire pack. However, it may not be what the seller meant, and you may receive only one of the cans in the mail.
This hypothetical example wouldn’t have you lose too much money. However, if you are running a large company and make the same mistake when ordering 1 million 6-packs, you may lose a fortune.
- Economic Risks
Lastly, when paying in foreign currencies, you may lose money when the commercial value of a product drops in light of sudden changes in the currency rates. For example, inflation could cause the currency rate to oscillate massively during a severe economic crisis. You may purchase goods while the currency rate is high, only to plummet immediately afterward. As a result, you will have to sell the products at a higher cost than a competitor who waited for the currency rate to drop before buying.