Multi-Currency or Single Currency Account?

Multi-Currency or Single Currency Account

Before answering the question let us first know more details about both the account types.

Single Currency Account

Normally when a business is set up and run, the bank is asked to settle the account for the company. A single currency account is usually a bank account in our base currency or we can say that cash management is done with respect to investor’s native currency. So, if the business is set up in India, then the Bank will use Indian currency as a settlement currency for the bank account.

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The credits that are paid to the investor in a foreign currency will be converted to the investor’s base currency on the basis of exchange rates and the currency will be maintained in the account. Similarly, when the investors will pay the debit then the cash in the base currency will be converted to the foreign currency according to the exchange rates and the transaction will take place.

Suppose that you are running a business from India (INR)and your customers are from France (Euro) and the US (USD). Now suppose that your clients from Strasbourg and Chicago are interested to buy your services then you have money from two transactions i.e. Euro and USD. Now your bank has to convert it into INR.

Both scenarios will have different transaction plus one settlement currency transaction.

Advantages:

1. There is simplicity and convenience as the accounting processes are carried out in a single currency.
2. It is the cheapest scenario with minimal or risk involved in it.
3. You can exchange the currencies whenever you want and you may get the best chance.
4. If the client wants then the client can also exchange when the best FX rates are offered.

Disadvantages:

1. The money will be converted with the FX rates that are set by banks or the one which benefits it.
2. You have to always exchange the currency on the basis of your native currency and then if you want to make payment in some other currencies then again conversion will be required.
3. The number of transactions is always increased i.e. original transaction +one settlement currency transaction.
4. The single currency account lacks the flexibility to process huge amounts of cash for larger businesses.
5. Most banks may charge additional fees for having different currency accounts.

Multi-Currency Account

If your business collects or processes sizeable payments and funds in a foreign currency on a regular basis then such businesses usually require Multi-currency accounts. It also avoids the discrepancies that may be caused due to the FX rates when the credits are issued.

The multi-currency account can also benefit your business due to the following reasons:

• Marketing Advantage– This will lead to more sales as customers are more comfortable when they see the prices in local currencies.
• Administrative Advantage – It will reduce the customer’s complaints
• Commercial Advantage – It will reduce the cost involved in currency processing

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Advantages:

1. The securities can be settled on the basis of the dynamic pricing on the basis of foreign currency.
2. You can hold money in multiple currencies and can switch whenever the best rates are offered.
3. You can pay or receive transfers in foreign currencies at reduced free which is almost negligible.
4. The risk is minimized as compared to the single currency account.
5. You can buy and sell in any currency and the security level is very high for borderless accounts.

Disadvantages:

1. The banking structure becomes complicated as you have to maintain the records in multiple currencies when you debit or credit your securities.
2. Potential tax issues may occur as the client may not be active in every market.

Thus, there is no good answer to the question asked. Multi-Currency or Single Currency Account depends on the requirements of business and how it is profitable. The client must study the market and decide which account type he must choose.

Author: Trushali Hindocha

About the Author:

Trushali completed her graduation in Computer science and engineering, she has worked as Associate Consultant in Atos Syntel for 18 months. She is currently pursuing MMS in Finance from KJ Somaiya Institute of Management Studies and Research, Mumbai. She is also well acquainted with Tableau and programming languages like Python and R for Data Analytics.

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