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Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

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11–27. Process Foreign Exchange Transactions over the Internet

Companies typically purchase or sell spot or forward contracts in foreign currencies in order to hedge their transaction activities that involve other currencies. However, this is a labor-intensive process involving calls to several banks to see which ones quote the best price. In many cases, the accounting staff simply does not have time to make a number of calls, and so chooses by default to deal with the same bank every time, thereby sidestepping the chance to obtain lower prices on its foreign exchange transactions. In addition, the incidence of errors in orders placed by phone is high, due to communication or transcription problems.

These problems can be avoided through the use of an Internet-based foreign exchange transaction site, such as www.currenex.com or www.gaincapital.com. These sophisticated trading sites allow one to request prices from multiple banks that provide executable live quotes using a reverse auction method. Under this approach, banks offering quotes know the identity of the trader, but do not know which other banks are bidding. This method results in the best price for a trader, and in addition yields great efficiency in the trading process, since there is no need to waste time making multiple phone calls to banks to obtain a range of quotes.

These on-line systems have other advantages, too. ...

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