Within the trade sector, especially when it comes to exporting and importing a wide range of goods, changes in exchange rates can directly affect the prices, costs and profitability of business companies. Sudden movements in exchange rates may increase import costs, reduce export income, and there might be uncertainty in international transactions. This article shows how the exchange rate fluctuations affect global trade and gives practical ways to handle this issue.

Impacts of exchange rate fluctuations on international trade

The currency has a significant impact on the trend of international trade and may reduce the profitability and increase costs for companies. However, using financial tools, currency diversification, flexible contracts and currency market analysis effectively helps business companies manage this challenge.

Meanwhile, we should not ignore the vital role of governments in establishing economic policies to reduce the fluctuations in the currency. For guaranteed success in international trade, companies must use intelligent strategies to reduce currency risks. In the following, we will examine the effects of fluctuations in the exchange rate on global trade.

1. Changes in Prices of Imported and Exported Goods

It goes without saying that the increase in domestic currency rate relative to foreign currency increases import costs and finally leads to more expensive imported goods. On the other hand, a decrease in the value of domestic currency will increase the competition of goods exported to international markets. These changes have a direct impact on business decisions and pricing strategies of companies.

2. Impacts on profit margins and trade costs

International companies trading in various currencies face risks of currency value. For example, Apple has managed to reduce the impact of fluctuations in the currency, using multi-currency financing strategies and establishing flexible contracts with its suppliers. Additionally, motor vehicle companies such as Volkswagen use currency risk hedges and long-term contracts to manage fluctuations.

3. Increased uncertainty in financial planning

Unexpected currency fluctuations can disrupt the financial plan of companies. Trading companies that need price stability in their transactions may suffer losses when facing exchange rate changes. This issue increases the necessity of implementing currency risk hedging strategies.

Strategies for the management of fluctuations in the currency

Measures should be taken to manage currency status and fluctuations, to reduce losses from currency or to prevent business companies from financial damage. Some currency management strategies include the following:

1. Using financial tools for currency risk hedging

Companies can use futures contracts, options and currency swaps to hedge the exchange rate against rapid rash. These tools help protecting them from exchange rate changes and reduce unexpected costs.

2. Currency diversification

Trading companies can reduce their dependence on a currency using a basket of various currencies. This strategy ensures that if a currency depreciates, its negative effect on the entire business is minimal.

3. Entry into flexible contracts

Including currency adjustment segments in commercial contracts can help companies protect themselves from unexpected currency ups and downs. These sections allow the parties to the contract to review prices in case of change in severe exchange rates.

4. Forecasting and Analyzing the Currency Market

Examining economic trends, monetary policies, and analyzing factors influencing exchange rates can help companies make better decisions in their financial management. Using economic reports and consulting with financial experts are among the effective actions in this area.

The role of government and economic policies in controlling the fluctuations in currency

Governments and central banks play an important role in stabilizing exchange rates and managing the currency fluctuations. For example, Germany has been able to create relative stability in the euro exchange rate, by managing stable monetary policies and interest rates through the European Central Bank. These policies include close monitoring of inflation, controlling liquidity and applying coherent currency policies.

On the other hand, the United Arab Emirates (Dubai) has brought the value of Dirham to the US dollar and reduced the currency fluctuations through strong foreign exchange reserves and prudent fiscal policies. This country has managed to maintain its currency stability by controlling liquidity flow and creating balance in international trade. These examples suggest that a combination of market intervention and intelligent monetary policies can help reduce currency fluctuations noticeably.

Stay with Mahta Vista

Mahta Vista Kish Company, by providing financial services and commercial consulting to trading companies, plays an important role in reducing the impact of currency fluctuations on trading companies. This company helps businesses stay safe from unexpected currency fluctuations through supplying foreign exchange resources, providing risk hedging solutions, and consulting on setting up commercial contracts.

Mahta Vista Kish services include currency market analysis, providing financing strategies, and consulting on the use of financial tools such as futures contracts and currency swaps. To benefit from these services and consultations, you can contact us through the “Contact Us” section on the Mahta Vista Kish official website.