How do exchange rates affect businesses?

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Exchange rates are an issue that businesses all over the world have to navigate. They’re often volatile and will quickly change, making it particularly difficult for businesses doing international exports and imports. Plus they affect international trade. Below, we explore how exchange rates affect businesses and what they can do.

Importing

Importing goods hinges on exchange rates. If your currency falls in value, then you’ll suddenly find that the cost of importing goods increases. By understanding more about your currency fluctuations, you can make your money go further when it comes to importing.

Exporting

If you export goods overseas a lot will depend on the currency you receive payment in. If you invoice the company in their domestic currency, then you’ll be subject to the fluctuations in their exchange rates. As a result, a sudden change in value can see you get less money than you were due for your exports. Having a close eye on exchange rates is therefore crucial. It can be easier if you invoice in your own currency, but make sure your prices don’t become uncompetitive if your currency suddenly rises.

Indirect impact

The changes in exchange rates can also have an indirect impact on businesses too. Even if you’re not importing or exporting, you’ll still notice the difference in other costs. Fuel and transport costs are affected by exchange rates, with many businesses relying on these services. At the same time, shipping costs will also hinge on exchange rates.

What can you do?

For a start, you should keep a close eye on exchange rates as they’ll directly affect your business. A currency analytic platform can help you monitor changes and adjust your prices or invoices accordingly. Plus, you can proactively forecast the best time for buying and selling goods.

The price of goods

You can go even further than using analytic platforms though. One way to combat fluctuations is to agree fixed prices by setting up future contracts with suppliers and anyone you’re exporting to. This insulates businesses from sudden volatile moments in exchange rates and much of the uncertainty surrounding deals is reduced. It also results in a lag period between the time it takes for markets to change and the moment a business experiences rising costs as a result. This lag time gives the business time to plan and react to sudden fluctuations.

Exchange rates have a huge impact on businesses. For exports and imports they’ll define how much you’re spending and receiving as you move goods around. You can stay on top of this though: by arranging fixed price contracts and by forecasting the market with analytic platforms, you can prepare for exchange rate fluctuations.