What are the Exchange rates?
Exchange rates are simply the value that a particular currency holds when converting to another(1).
If we are being honest, one of the most difficult things to do in life is to become an importer. Think about it, you have to buy goods from one country miles away using one form of currency and then you have to bring it down to another country, clear it at the ports, and then make adequate provisions. We didn’t even include all the late nights, inventories, government, and client stress associated with it, now on top of this, add a fluid economic 
system with unstable and sometimes shockingly, multiple exchange rates.
An exchange rate is simply the value that a particular currency holds when converting to another(1). For those who do not know, even the slightest change in the exchange rate can cost you a lot of money, so, to be able to chart your way in the sea of exchange rate storms is a skill every importer should have. A few of the common factors that affect exchange rates include:
- Interest rates: Countries with high-interest rates usually have stronger currencies and high-interest rates attract foreign investment which means more money can flow into the country and the value of the currency increases.
- International trade: International trade is one of the most prominent factors that affect exchange rates. When you export or import goods to different countries you do so in different currencies and this could mean that your business would make profit or record losses.
- Economic growth: This is a relatively simple line to draw. A good economy would definitely mean that the currency would be strong and a weak economy would mean that the currency would be volatile. When a country experiences relevant economic growth the currency would increase in value and for countries with very weak economies, the effects could be far-reaching for the currency.
We have curated a few things for you to bear in mind and employ if your business deals regularly with customers/clients outside their country:
Common Issues associated with Exchange Rates
- Change is king; without a doubt the only constant thing about exchange rates is that they will almost always change, given the current global economic system, businesses and nations have been hit hard so as an importer looking to do business you must bear this in mind. So, it is possible that you agree on a price with a customer today and the price rises or falls because of the exchange rate.
- Local or International import price; if you import goods in a foreign currency and you have to sell them in the currency of your home or host country, then you have to be deliberate about making your prices reflect the given exchange rate.
- Export price: Conversely, if you are also exporting, you have to decide whether it is in your interest to price your goods in your local currency or that of the country in which you are trading. several factors can influence this decision like your branding in the market and the market price of your competition.
- Translational Risks; Another problem associated with trading in this global system is that you could run a risk of having your assets and liabilities expressed in a foreign currency. This means that if your goods are expressed in a foreign currency you may lose profit when you try to “translate” them into your currency if there is a problem with the exchange rate.
But don’t worry, there are a few things you can do to navigate this problem and stay dry when the rain comes. Some of them are:
- Foreign currency accounts: If you trade in a particular currency a lot, it would be advisable to set up a foreign currency or domiciliary account, this way, you can pay bills and make or accept payments in a foreign currency. It is also possible to set up multiple foreign currency accounts.
- Try Hedging: One of the most important things on your checklist as an importer is to use one of many forms of hedging available. Simply put, hedging is a financial term that means you get a contract that insures you against the risk associated with currency fluctuation. So whether price movements or changes in interest rates, through hedging you can find a safe landing to absorb your risks.
- Market Orders: by placing a market order, you can request a foreign exchange conversion of a specific amount or exchange rate on goods. This will guarantee that your order will be executed but the price may not be guaranteed. You also may not need to constantly monitor the currency rates as the executed price will be close to the initial price that your order was made in.
- Currency options: By using a currency option you can secure a certain exchange rate and also be able to participate if the market tilts in your favor. Currency options can also give you a chance to trade and profit based on market predictions.
- Seek Financial Advice: it is very important that while you consider the myriad of options you have to stay on top of the exchange rate you need to seek financial advice. You can consult your bank or a financial advisor to consider the best option available for your business and the best way possible to go about it.
Because of the unpredictable nature of the international market and the several internal factors affecting countries, it is difficult to clearly define the space of conducting business when dealing with exchange rates. You must bear in mind that the volatile nature of exchange rates can decide if you make a profit or actually record losses in your business. Ultimately, since the main goal of all businesses remains to make a profit, it is advisable that you closely study and monitor the exchange rates as they affect you and seek adequate advice on navigating them.
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