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How to prevent the risks of foreign exchange transactions

by:VIPUTRANS     2020-07-27

How to prevent the risks of foreign exchange transactions in foreign trade? Due to the integration of international economy and trade, the economic exchanges between countries are becoming increasingly close. In many cases, investors will face the problem of using foreign exchange transactions when trading, but changes in exchange rates may bring additional losses to themselves. How to prevent it?

Specifically, there are three risk components of foreign exchange transactions-local currency, foreign currency and time, which constitute time risk and value risk.
Risk prevention method one for foreign exchange transactions:
Methods of optimizing currency combinations. Under normal circumstances, in export trade, 'coins' or currencies with upward trends should be selected as denominated currencies; in import trade, 'soft currencies' or currencies with downward trends should be selected as denominated currencies. In the selected currency combination, a combination of 'coins' and 'soft currencies' can be used, so that the gains from the appreciation of the currency can be used to offset the losses caused by the depreciation of the currency. If the other party insists on choosing the currency in the transaction, negotiation can be done so that the buyer and the seller will not suffer each other.

Risk prevention method two for foreign exchange transactions:
Early payment or deferred payment. After the import and export contract takes effect, the company should closely follow the expected exchange rate changes of the expected receivable and payable currencies to the local currency. Once the exchange rate is found to have a more dramatic fluctuation, it can be avoided by changing the receipt and payment time for the accounts receivable and payable.

The third method of preventing foreign exchange trading risks:
Balance method. It refers to a method in which, in the same period, an enterprise uses operations to create a situation in which funds of the same currency, amount, and duration are opposite to the currency at risk, so as to eliminate foreign exchange risks. Of course, under normal circumstances, it is difficult to achieve a 'complete balance' between the receivable and payable currencies of import and export enterprises. Therefore, to achieve this operation, it also needs to rely on close cooperation between various departments of the enterprise.

Risk prevention method four for foreign exchange transactions:
Adjust the contract price. In the export business, if the exporter insists on using its own currency as the denominated currency, the exchange rate risk of the company's export will increase when the exchange rate appears to fluctuate. For this reason, in the case of a seller’s market, exporters should appropriately increase the export price to make up as much as possible for the losses that may occur during the expected foreign exchange collection.

Specific methods must be derived from practice. The above methods are only theoretical guidance. How to operate. The problem is that participants in the transaction should pay more attention to market changes and adopt reasonable risk control measures to protect funds.
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