Successful import-export transactions start with a currency exchange plan
The world is finally getting to know itself from a business perspective, thanks to the Internet and successful import-export transactions. Some countries base their economic stability on exports, as well as imports. In fact it’s hard to find a country that doesn’t import or export something to another country or group of countries. The foundation for a ongoing import-export business is built with solid relationships, money and an understanding of the currency exchange market. The currency exchange market is the sleeping giant that can make or break a transaction in an hour, simply by moving from one value position to another. Every successful import-export transaction starts with a currency exchange plan that is tailored to that transaction and it should be treated like a mother who is waiting to give birth. In other words, each international transaction should be treated with tender loving care by knowing how your currency pair is interacting with each other.
Import-export transactions are based on a future event
Building a relationship with agents, factories and other businesses in the country you export from, is crucial to the success of every international transaction. A good business plan, as well as good business practices, build long term relationships with businesses in another country. Relationships and money, or the proof that money is available, are usually the catalysts that set an import or export transaction in motion and then other details like product development, quality control and manufacturing time schedules take over until the export order is ready to ship. That process can take months. In that period of time your currency or your export country’s currency could have depreciated or appreciated several times, which means the amount of money it takes to pay for the goods has changes in value. Doing business without knowing how much your export goods finally cost is not business, it’s attempted commercial suicide.
Currencies are constantly fluctuating
Fluctuating currency pairs is a reality that every import-exporter faces on a daily basis. If business is conducted in a country that is unstable politically, economically and socially, the chances of losing money on an exchange are greatly increased. Since money has to be earmarked for the transaction ahead of time in the form of a letter of credit, bank guarantee or wire transfer, it makes sense to consult with a professional currency broker before you commit and begin the export process. A professional broker will help you develop a currency exchange strategy that suits your currency pair. A broker watches the currency market hourly and has a history of your currency pair, so projections can be made about future value changes. A currency broker can help you hedge to reduce your financial exposure, especially when you’re dealing with a volatile currency pair.
What is hedging?
Hedging reduces your financial risk by taking a position in the spot currency market. Let’s say your currency pair is the US Dollar and the Vietnamese Dong. To protect yourself from a depreciating Dollar against the Dong, your hedge would be to short Dollars and go long on Dong in the spot currency market. When you use a trading account with a currency broker, you can customize the amount of leverage you need. A broker can help you execute a perfect hedge at a very low cost. Without the assistance of a currency broker, hedging can be devastating, especially if you’re unfamiliar with leveraging. If you don’t hedge with a broker, there’s always a chance the goods will cost you more, or they might cost less, but most import-export companies would rather hedge than gamble and risk part of their profit when the shipment is ready. Hedging can be done over the Internet with no fees or commissions to pay, except for the bid/ask spread.
ForexTraders.com provided this article to help you understand the how currencies can affect the import export trade. For additional information on forex and currency trading, visit ForexTraders.com. There you will find valuable resources and countless articles on brokers, strategies, forex fundamental and technical analysis and even a free course.