What impact does a change in exchange rate affect trade?

July 20, 2012 by  
Filed under Forex, Forex News

There are so many currencies in this world that dealing with FX can be very tricky these days. With more and more sophisticated markets, it’s not that simple to hedge your position. Markets can be very volatile and you want to limit your exposure to that volatility. That impact can be complex to understand for different aspects of the trade┬ásuch as shipment finance.

Let’s say you are a manufacturer of drugs and you have a contract with a hospital in Japan for 1 year. Japanese Yen will move in your favor or against you. During that timeframe, a lot of money can be a stake. If you have a $10m contract and Japanese Yen goes 10% against you, you might lose $1m. That’s a lot of money! And that can be even wose. We know how markets can be highly volatile and you are not a trader. Your job is to manufacture drugs not to trade USD versus JPY.

To answer this specific issue, you can consider FX hedging contracts or different types of contracts to cover your exposure. Just talk to a financial advisor to find out what would be the best solution for you!

Enjoy trading!