The Importance of the Foreign Currency Clause in Foreign Business Transactions

The principal purpose of a foreign currency clause in economic and financial transactions is to preserve a real value of business operations from the moment of contract conclusion until their completion. There are three types of hedging instruments: monetary clause, index clause and sliding scale clause. The issue of foreign currency clause is much more complex when business operations are concluded with foreign partners due to different legal regulations and, in some cases, political systems. It becomes even more complex in case of long term and high value contracts. It could become especially complicated in case of cancelling a contract. Therefore, defining a currency clause as well as the means (and institutions), local and international for hedging is of utmost importance. It is also significant that the parties agree on competent courts and laws according to which disputes shall be settled. In this paper we will give examples from practice.