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Export & Import Risk Training
Export & Import Risk Training
How concerned are you about incurring business losses due to foreign exchange movements?
Every international trade transaction represents a currency exchange risk to either the exporter or importer and this has been more apparent than ever with the current weakness of sterling against the euro and US Dollar, which represents a benefit or challenge depending on which side of the fence you happen to be sitting.
A UK manufacturing company exports worldwide and has won a contract to supply goods to a buyer in the Middle East. The contract value is US Dollars 1.5 million and will be payable in three stages:
Stage 1 – 30 per cent (USD 450,000) upfront
Stage 2 – 50 per cent (USD 750,000) following shipment of the goods approximately 60 days later
Stage 3 – 20 per cent (USD 300,000), 90 days after receipt and installation.
Today’s exchange rate is 1.5205, at which the initial USD 450,000 is converted = £295,955
If the remaining dollars were converted today at the same rate (1.5205), the exporter would receive a total outstanding balance (USD 1,050,000) of £690,562, however....
The actual exchange rates between today, and payment of the respective balances, will change.
1) On day 60, the second-stage payment of USD 750,000 is received and converted at the day’s rate: 1.6750 = £447,761
2) 90 days after receipt and installation, the final stage payment of USD 300,000 is received and converted at the day’s rate: 1.8525 = £161,943
Total outstanding balance received: £609,704, … which is
£80,858 LESS
than anticipated using the original exchange rate on day 1. This is due to the weakening of the US Dollar against sterling during the intervening period.*
(*This example is for illustrative purposes only and may not reflect current market movements.)
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