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  • Members pursue convergence for an IP COVID-19 response October 14, 2021
    At a meeting of the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS) on 13-14 October 2021, WTO members noted encouraging exchanges at recent small group discussions and bilateral meetings which helped to identify points of convergence on how to provide a common intellectual property (IP) response to COVID-19. The chair of the TRIPS […]
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  • Turkey launches safeguard investigation on grinding balls and similar articles for mills October 13, 2021
    On 13 October 2021, Turkey notified the WTO’s Committee on Safeguards that it initiated on 9 October 2021 a safeguard investigation on grinding balls and similar articles for mills.
    WTO
  • Trade Policy Review: Republic of Korea October 13, 2021
    The eighth review of the trade policies and practices of the Republic of Korea takes place on 13 and 15 October 2021. The basis for the review is a report by the WTO Secretariat and a report by the Government of the Republic of Korea.
    WTO
  • WTO briefs members and observers on COVID-19 related initiatives and analysis October 12, 2021
    Over 180 representatives from 111 members and observers participated on 12 October in a virtual information session on the WTO Secretariat’s work to support equitable access to COVID-19 vaccines.
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Currency Risk Management



 

 

International Trade transactions could generate a currency risk exposure. This is especially so when an Exporter accepts to be paid in a foreign currency. Indeed, since the time span between the sales contract is signed and the payment is made, could take several weeks or months, the foreign currency is likely to fluctuate in the meantime and impact (favourably or adversely) the final amount received by the Seller when currency exchange has been translated in the domestic currency.

In much the same way, an Importer who accepts to pay a given amount denominated in a foreign currency is exposed to currency adverse movements.

In short, we can see that the seller and the buyer have conflicting interests, since the Exporter is exposed to the depreciation of the foreign currency that he will receive, while the Importer is exposed to the appreciation of the foreign currency in which he must honour a payment.

One way to get around this problem could be to require an upfront payment in the local currency. However it goes without saying that this option is somehow business-unfriendly, to say the least. In addition, granting extended payment terms might be the only way to conquer new markets.

Fortunately, this risk can be managed by using the appropriate hedging solution.

Overall, two types of hedging tools are available in International trade: Internal and External hedging techniques.

 

Please click on the links below for a detailed explanation of each technique