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Does exchange rate of foreign currency with local currency affect export business?
Let us discuss, how does change of exchange rate of currency effect export business?
Your buyer sent you a purchase order in January, for 24 containers to ship 02 containers each month. The price fixed as USD 20,000 per container and total of USD 480000 for 24 containers. You have quoted the rate as per the exchange rate of 
January, but the shipment period is through out the year till December. Your term of payment is 60 days from the date of bill of lading. Means, you have agreed a credit limit of 60 days from the date of shipment. In this case, you will start receiving your payment from March onwards till February of next year. Here, the exchange rate of this month may not be for next month. In short, certainly there would be a difference in exchange rate of March to February of next month. So, when converting USD in to your country’s currency, you can anticipate loss in business also.
How to overcome such risk of variation of exchange rates in Exports and Imports?
There are some solutions to solve risk in variation of exchange rates in exports and imports. One of them is to open an EEFC – Exchange Earners Foreign Currency account with your bank. Here, you are maintaining a foreign currency account in your name where in you can convert to your currency as and when you require.
Another method to prevent loss in variation of exchange rate is to enter overseas business contract to pay amount in local currency. Here, your buyer/importer buys – converts - your domestic currency and remits amount to you in your local currency. You need to make clear about these arrangements before entering in to the business contract.
Hope, you have satisfied with the above example, variation of exchange rates of foreign currency effects export import business. Do you wish to add more information about variation of exchange rates of foreign currency and its impact in export and import trade?
Also Read: Commercial risks and solutions under Export Business Political risks in International Trade Risks arising out of foreign laws in Import Export Business Cargo risks under Imports and Exports Types of Policies to cover credit risks in Import Export Trade Causes influencing price of export goods in Export Trade Credit risks and solutions under International Business Foreign exchange fluctuations risks and solutions in import export Business How to overcome the credit risk in an export business? Marine Insurance policies Risks and solutions in Export Business
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The above information is a part of Guide on howtoexport and import
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