Cross-border payments are transactions between individuals, companies, or other institutions, where the payee and the transaction recipient are based in separate countries.
Cross-border payments often involve multiple currencies as the payee and the recipient may have different home currencies and consequently may have currency risks associated with such payments.
Currency conversion of the cross-border payments at the time of the payment may not be necessary adequate to manage foreign currency risks, particularly when there is a time lag between the time of sale and the time of payment. For example, an importer entering into a contract to buy goods from a foreign country is often exposed to FX risks from the moment of signing the contract and can use financial instruments such as forward contracts to hedge the risks.