Floating exchange rate: know the payment cost before the debit

An importer signs a contract in foreign currency but pays in roubles. Between these two moments the exchange rate can move by several percent. Below: how the floating rate works, where the risk arises and how to know the cost of a payment before the money leaves your account.

How the floating rouble rate works

Since November 2014, the Bank of Russia has not held the rouble within a set corridor. The rate is formed by supply and demand: importers and companies with foreign currency debts buy currency, exporters sell their proceeds. The Bank of Russia can influence the rate through the key rate and other instruments, but it does not fix it.

The rate is affected by export proceeds and commodity prices, importer demand, the key rate, the state’s currency operations under the budget rule, and market expectations. The movement of the rate on the date of your payment cannot be predicted. You can only decide in advance who bears this risk and how.

Every business day, the Bank of Russia sets the official rate. Since June 2024, the Bank of Russia has calculated the dollar and euro rates from banks’ over-the-counter trades, because exchange trading in these currencies stopped. The yuan is still traded on the exchange.

The rate also changes during the day. In a calm market these are fractions of a percent; on a turbulent day, several percent. On a large amount, such volatility is visible straight away.

Three rates in one deal

A single payment abroad usually involves three different rates:

• the official Bank of Russia rate: used for accounting and for converting amounts for currency control;
• the market rate: the rate at which banks and agents buy currency at the moment;
• the executor’s rate: the market rate plus an FX markup, the rate at which you are sold currency for the payment.

The difference between the Bank of Russia rate and the rate in your payment does not in itself mean an overpayment. Part of it is explained by timing: the official rate is set for the next day, while the market moves in real time. In addition, for a dollar payment the rouble/dollar rate is often derived through the yuan or another currency, that is, as a cross rate, and the markups of each step accumulate in it. But if the difference is large, it is worth breaking it down into its components. We showed how to do this in the article on the cost of paying an invoice.

Where the importer loses on fluctuations

Currency risk arises at several points:

• between signing the contract and paying: the price is in foreign currency, but the budget is in roubles;
• between agreeing the terms and debiting the roubles, if the rate is ultimately taken at the moment of execution;
• when a payment is returned: the money comes back and is converted back at a different rate;
• when paying in installments: the advance and the balance go out at different rates.

Long contracts with delivery several months later carry a separate risk. The price in foreign currency is fixed, while the rouble budget of the deal was calculated at the rate on the signing date. If the rate has risen by the payment date, the deal’s margin shrinks.

The worst situation is when the rate is not fixed before the debit. You have transferred the roubles, and you only find out later how much foreign currency they will buy.

How to fix the cost of a payment

The rate in the payment order before the debit

For a one-off payment, this is the simplest way: get the rate and fee in writing before you transfer the roubles. Then the total in roubles is known in advance. Such a quote has a validity period. If the roubles arrive later, the rate is recalculated. If you are comparing several offers, request them at the same moment; otherwise the difference in rate will turn out to be a difference in timing.

A currency clause in the contract

You can agree with the supplier how to share the currency risk. For example, a price in roubles that is reviewed if the rate moves outside an agreed corridor. Or a price in foreign currency with the right to review it if the rate moves sharply. This is a matter for negotiation, and it is better settled before signing.

Forward

A forward contract with a bank fixes the rate for buying currency on a future date. It is a hedging instrument for large planned payments. A forward has a price, and it is not available to every client or in every currency. A forward obliges you to buy the currency at the agreed rate, even if the market moves in your favor by that date. It is insurance, not a way to make money on the rate.

Paying in installments

If the payment is large and the contract allows paying in installments, the currency can be bought in several goes. This does not protect against rate movements, but it smooths them out: the whole amount does not land on one bad day.

Why there is no fixed rate on our website

Any rate published in advance goes out of date within minutes. So the honest answer to “what is your rate” is: the one written in the payment order for your payment. Figures in advertising and in calculators give a reference point, not a commitment. The commitment begins with the document you signed before transferring the money.

How it works with us

At VEDmost, the rate and fee are fixed in the payment order for each payment before the roubles are debited. You see the total in roubles and decide whether to pay on those terms. We select the agent for the payment from our pool: different agents have different FX markups, and we compare their terms. On request, the roubles wait for execution in a special escrow account at a Russian bank, for an additional fee. More on the Import payments page. If you want to check how much you are losing on the rate now, name your rate on the Compare your rate page: we’ll look for a lower rate in our pool.