If you’re running a business that deals with foreign currency — whether you’re importing raw materials or exporting wine to Europe — you’ve likely felt the sting of an unpredictable exchange rate.
Currency movements can be brutal. You quote a client, or cost a project, based on the rate at the time, and then — before you know it — the rand has shifted, and your profit margin is gone. This is where one of the most underutilised tools in the South African business landscape comes into play: the Forward Exchange Contract (FEC). It’s simple in principle but powerful in practice.
Let’s unpack what it is, how it works, and how you can use it to manage foreign exchange risk with more control and less stress.
What Is an FEC?
An FEC is a financial agreement that allows you to lock in an exchange rate today for a foreign currency transaction that will happen at a future date. You agree upfront to buy or sell a fixed amount of currency at a fixed rate on a future date, regardless of what the exchange rate is on that day.
For importers, this means you’ll know exactly what your foreign invoice will cost you in rands. For exporters, it allows you to fix your rand income from a future foreign payment, even if the rand strengthens before the funds arrive.
Not a gamble, just a buffer
Contrary to popular belief, FECs are not speculative. You’re not betting on which way the rand will move. FEC pricing is based on the interest rate differential between the rand and the relevant foreign currency.
This formulaic calculation determines your forward rate — not some guess about future currency levels. In other words, an FEC doesn’t help you win. It helps you avoid losing.
There are three main types of FECs, and the right one depends on how fixed or flexible your foreign commitments are:
Fixed FEC
- You lock in the amount, rate, and date.
- Use when: You have confirmed payment dates and amounts.
- Example: An import of machinery with a payment due on December 1.
Partly optional FEC
- The rate and amount are fixed, but the settlement date can vary within a window.
- Use when: Shipment or payment might shift slightly.
- Example: Delivery expected “late November”, but delays at customs are possible.
Fully Optional FEC
- You can draw down the funds in portions, over a broader time frame.
- Use when: Timing and amounts are uncertain or spread out.
- Example: Export proceeds from multiple staggered shipments.
The more flexibility you build into the contract, the less favourable your forward rate might be — but many businesses find the flexibility worth the trade-off.
How far ahead can you book?
In South Africa, under the active currency management framework, Sars custom registered importers, exporters and companies providing services to non-residents, FECs can be booked up to 360 days in advance. This ensures FECs are linked to legitimate cross-border transactions — not speculative plays on the rand.
Why this matters: A real example
Imagine you’re importing $250,000 (R4.4m) worth of electronics, payable in 90 days. Today’s rate is R18/$, which means you budget R4.5m. But if the rand weakens to R19/$ before payment is made, you’re suddenly on the hook for R4.75m — an unplanned R250,000 hit to your budget.
With an FEC, you could’ve locked in the R18/$ rate today and avoided the loss. the same logic applies if you’re exporting and expecting €100,000 in six months. If the rand strengthens from R20/€ to R19/€, your rand income drops from R2m to R1.9m — a R100,000 hit.
An FEC protects your expected earnings, ensuring your projections remain intact.
Plan ahead, don’t react
Too many businesses wait until they’re burnt by currency swings before they consider a risk management strategy. But foreign exchange should be planned, not panicked over. FECs allow you to proactively lock in certainty, and protect your business from one of the most unpredictable external variables — the exchange rate.
You can’t control the global economy, interest rate decisions, or geopolitics. But you can control how exposed your business is to their effects. FECs aren’t exotic or complicated, they’re practical financial tools that help turn uncertainty into strategy.
If your business regularly deals with foreign currency, and if profit margins matter — and they always do — then FECs are worth serious consideration as part of your broader financial planning. Because when it comes to foreign exchange, control is everything.
• Bezuidenhout is the founder of financial services provider BeztForex.co.za and the global trade AI platform Zynched.com
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