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What Is a Foreign Currency Account?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 04 November 2018
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    Conjecture Corporation
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A foreign currency account is denominated in a currency other than that used domestically. This allows the accountholder to send and receive funds in that currency, as well as investing in it with savings certificates and other options. For example, an Australian company might maintain a foreign currency account in United States Dollars (USD) to work with vendors in the US. There may be extra fees and considerations for this type of account, and it is not available at all financial institutions.

Companies that regularly do business internationally may find it convenient to maintain a foreign currency account. They can send and receive funds through the account with international vendors to avoid paying exchange fees and reduce the risks associated with foreign exchange fluctuations. The account can also make it faster to process invoices and payments. Funds can be converted and deposited if necessary to increase the size of the balance.

Investment instruments are also available. These classically take the form of time deposit accounts, where the investor puts in a certain amount of money and agrees to leave it there for a set period of time in exchange for interest. Earnings can be higher on a time deposit than a demand savings account where money can be withdrawn at any time. This can allow people to take various positions in foreign currency markets by holding currency and earning interest while they wait for changes in market conditions.

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Banks that offer this service may charge a special monthly fee for handling a foreign currency account. Fee schedules should be available from representatives who can provide information about the different options. Customers unsure about the best choice can ask for advice, given the situation and the types of products a bank provides. Financial institutions without this capacity may offer referrals to partner institutions that do if a customer clearly needs the service.

Policies regarding insurance on a foreign currency account can vary. In some nations, such accounts are fully covered. Others do not provide this coverage or have restrictions, like requiring that the customer be able to withdraw funds domestically before insurance will be provided. Customers with concerns can talk to bank staff to learn more about the options and how much money they can safely leave on deposit. It is important to be aware that losses as a result of changes in the exchange rate or political instability are not insured.

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