Exchange Fluctuations and International Trade
When a seller quotes an export price for a product or receives an offer in terms of foreign currency, there is concern with the exchange rate fluctuations that may occur before the seller receives payment. When quoting prices in terms of the foreign currency, the exporter knows how many dollars are to be received at the current rate of exchange. However, when the customers pays in Sterling Pounds, Deutschmarks, Indian Rupees, Japanese Yen or some other acceptable foreign currency, the amount received in terms of dollars will depend upon the rate of exchange when the currency is converted. When the price is quoted in the foreign currency, the exporter accepts the risk of exchange fluctuation. Unless steps are taken to protect expected profits, a decline in exchange rates may reduce profits or even convert them into a loss. Exporter’s Means of Protection An American exporter can obtain protection against exchange Continue reading