How do foreign currency issues affect importing and exporting?
Businesses who import and export products must consider how foreign currency issues might affect their bottom line. Not only do they have to contend with changing prices globally, but they are also exposed to foreign currency fluctuations which can have a big impact on profitability. In this blog, you will learn:
· How currency exchange rates affect import and export businesses
· Tips for minimizing the impact of foreign currency fluctuations on your business
· Benefits and considerations of forward exchange contracts
· Other options for trading overseas
· How to find a good currency exchange rate for your business
How currency exchange rates affect import and export businesses
Import and export businesses are affected by currency exchange rates in a number of ways. When the value of a currency changes, it can make imported goods more expensive or cheaper compared to the locally produced goods. It can work the opposite way too and make export goods more or less competitive, affecting demand and impacting sales for the exporter. When businesses trade across multiple currencies, it can be harder to predict profits due the currency fluctuations, especially if the business is trading with countries where there are often large currency fluctuations, perhaps caused by hyperinflation or unstable economies. As a result, import and export businesses must look for ways to manage their exposure to foreign currency issues.
Tips for minimising the impact of foreign currency issues
When you are importing or exporting, currency fluctuations can create problems for your business. Here are a few tips on how to avoid foreign currency issues when importing and exporting:
1. Be aware of exchange rates. Keep track of the exchange rate between the currencies of the countries you're doing business with. This will help you budget for expenses and avoid surprises.
2. Use forward contracts. A forward contract lets you lock in an exchange rate for a future transaction. This can protect you from losses if the value of the currency changes before the transaction takes place.
3. Consider trading overseas in sterling. This passes the currency exchange risk to the other business. This may not be possible or appropriate, so this option should be considered on a case-by-case basis.
Benefits and considerations of forward exchange contracts
Advantages of forward foreign exchange contracts
· You can budget more easily because you know in advance exactly what the transaction will cost.
· You're protected if the exchange rate moves unfavourably.
Considerations of forward foreign exchange contracts
· You are committed to the contract even if your circumstances change.
· You won’t benefit from a favourable exchange rate movement because your rate is fixed when you take the contract.
Other options for trading overseas
Open an overseas bank account
You could open a bank account in the country where you are trading. However, this is probably not practical if you are trading with many different countries and currencies. If you open an overseas account, you can receive payment in local currency and only convert it when the rate is favourable – if your business has sufficiently flexible cashflow to allow this.
Having an overseas bank can make it easier and cheaper for your customers to do business with you so this could have a positive impact on your sales.
How to find a good currency exchange rate for your business
The best way to avoid foreign currency issues is to use a specialist currency broker who can get you favourable rates, lower fees and guaranteed secure delivery of your funds to the recipient on time. Moving currency are experts in setting up forward contracts and currency options to give you peace of mind when doing business internationally.
Get in touch and our team will be happy to answer any questions you have or open an account online in just 5 minutes today.
Contact us on UK 0207 435 7052 or USA 516 548 6485 or email info@movingcurrency.com
Other articles you might be interested in:
What is a foreign currency conversion?
What’s the best way to exchange large amounts of currency?
How to grow your business globally
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