This clause decides who bears the risk if exchange rates move between when you agree the price and when you actually get paid. For example, if you're a UK company owed $10,000 USD and the pound strengthens, you'll receive fewer pounds than expected. A currency fluctuation clause might say: "prices are fixed in USD" (you lose if the pound strengthens) or "prices adjust monthly to the exchange rate" (the other party bears the risk). This is high-risk because exchange rates can swing 5-10% in weeks, significantly changing your actual payment. The legal principle is that without a clause, you bear the risk by default.
If you're paid in a foreign currency, insist on a fixed exchange rate locked in at contract signature, or ask the other party to pay in your home currency instead. If rates must float, set a "collar"—agree that if rates move more than 3%, you'll split the difference, rather than one party taking the whole loss. ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause decides who bears the risk if exchange rates move between when you agree the price and when you actually get paid.
Why should I care about this clause?
For example, if you're a UK company owed $10,000 USD and the pound strengthens, you'll receive fewer pounds than expected.
What are my options?
A currency fluctuation clause might say: "prices are fixed in USD" (you lose if the pound strengthens) or "prices adjust monthly to the exchange rate" (the other party bears the risk).
How does this affect small businesses?
This is high-risk because exchange rates can swing 5-10% in weeks, significantly changing your actual payment.