Overcoming the Risk of Exchange Rate Variations in Export and Import Business
Updated: May 1
Today we will be discussing how the change of exchange rate of currency can affect export business and how to overcome the risk of variation of exchange rates in exports and imports. Here are 10 key points to consider:
When you receive a purchase order from a buyer, you quote the price according to the exchange rate of that month, but the shipment period is throughout the year. Therefore, there may be a difference in exchange rates between the time of shipment and the time of payment.
You may anticipate losses in your export business due to exchange rate fluctuations.
To overcome this risk, you can open an EEFC - Exchange Earners Foreign Currency account with your bank. This allows you to maintain a foreign currency account in your name and convert to your currency as and when you require.
Another method to prevent losses due to exchange rate fluctuations is to enter an overseas business contract to pay the amount in local currency.
You need to make sure that these arrangements are clear before entering into the business contract.
You can also hedge your exchange rate risk by entering into a forward contract with your bank. This allows you to fix the exchange rate for a future date.
You may also consider using currency options to hedge your exchange rate risk. This allows you to protect against unfavorable exchange rate movements while still benefiting from favorable ones.
Keeping an eye on the exchange rates and having a good understanding of the markets can help you make informed decisions and reduce the impact of exchange rate fluctuations.
It is important to keep communication open with your buyers and suppliers to ensure that everyone is aware of the potential risks and solutions.
By taking steps to manage your exchange rate risk, you can help protect your export and import business from losses and improve your bottom line.
Thank you for listening.
Summary:
Today, we discuss how currency exchange rate fluctuations can affect export businesses and some key points to consider for overcoming these risks. A difference in exchange rates between the time of shipment and payment can result in losses, some solutions for this are, opening an Exchange Earners Foreign Currency account, entering into overseas business contracts to pay in local currency, and hedging exchange rate risk with forward contracts or currency options. I emphasize the importance of keeping communication open with buyers and suppliers, monitoring exchange rates and having a good understanding of the markets. By managing exchange rate risk, businesses can protect themselves from losses and improve their bottom line.