Tuesday, 5 January 2016
Dealing with foreign exchange risk; Part1
Hello readers, so 2016 is finally here. I am still excited much, are you still excited? I am sure you have made plans for the year, make sure you adhere to them. Today, I decided to talk about how to minimize the exchange rate risk. I know some of you are into importing and exporting, thus you will be exposed to the risk. When foreign transactions are being carried out by an entity or an individual there is always a probability that the foreign currency that you might be receiving might fall in value when compared to the currency of the country where your business is domiciled. Thus, you end up receiving a lower amount than you expected.
A way this risk can be mitigated is to trade in only one currency which is the currency of the country in which your business is domiciled. U.S.A only receives and pays out dollar that way they put the conversion risk on the party they are dealing with. You can adopt this method too, thus, you pass the exchange rate risk to the other party.
Another way this risk can be mitigated is to make the goods you are selling in the country you want to sell them (if your business is big). Thus, any business dealing that has to do with the country should be dealt with in that country. I have dealt with the economic risk associated with foreign currencies in this article. Part 2 of this article will deal with transaction risk. It will be provided next week.
Keep checking my blog regularly. Cheers!