A fluctuating exchange rate can play havoc on a planner's budget. If the local currency appreciates between the contract date and the payment date, it has the effect of increasing the cost of the products or services to your attendees and your organization. If the local currency depreciates after the contract is signed, your organization and your attendees both benefit because the set prices can be paid with less dollars. Since no one can predict whether the local currency will fluctuate or in what direction, the best practice is to "hedge" the currency risk with one of three accepted methods or a combination of each.
1) Open an interest-bearing checking account with a local bank in the city where the event will take place. Depositing money in a local bank account removes the risk of negative currency fluctuation and gives comfort to your vendors knowing they will be paid by local bank draft. The downside is that your organization has to make large deposits with the bank before revenue is received for the meeting. Additionally, bank service fees and rates are not always competitive.
2) Purchase a Currency Forward Contract (CFC). This eliminates your organization's risk of currency fluctuation by allowing you to purchase a specific amount of foreign currency at a current fixed rate of exchange for delivery at a future date. Once the exchange rate is locked in, the U.S. Dollar amount is fixed for the duration of the agreement. You can budget without currency fluctuations negatively affecting profit margins. The cost of a Forward Contract is usually a deposit of 10 percent to 20 percent of the dollar cost of funds. There are no service fees. It's best to purchase a Forward Contract through a foreign exchange broker rather than a bank (see box).
3) Purchase an Option Contract. This provides flexibility in managing currency fluctuation by giving the buyer (U.S. Organization) the option to purchase foreign currency at a fixed price before a specific date. You will be required to put down a deposit to obtain the contract. If you choose not to exercise the option, the deposit will be lost.

 

Source: PCMA