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  • Members give US green light to impose countermeasures on EU in aircraft subsidy dispute October 14, 2019
    WTO members agreed at a meeting of the Dispute Settlement Body (DSB) on 14 October to authorize the United States to impose countermeasures on European Union goods and services trade with the US up to a value of USD 7,496.623 million annually. The authorization was granted in line with a WTO arbitrator decision issued on […]
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  • Online registration opens for conference to mark 30 years of Trade Policy Review Mechanism October 14, 2019
    Online registration is now open for a conference to be held on 27 November 2019 at the WTO to mark the 30th anniversary of the WTO’s Trade Policy Review Mechanism (TPRM). The conference will focus on the role of the TPRM in providing enhanced transparency, accountability and monitoring of the multilateral trading system.
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  • DDG Wolff: The multilateral trading system will endure and will adapt October 14, 2019
    Speaking at a conference on global trade held at Chatham House, London, on 14 October, Deputy Director-General Alan Wolff said that at a time of slowing global economic growth and political uncertainty the WTO is even more essential, with its rules providing fairness and preventing discrimination. He stressed the importance of discussions aimed at strengthening […]
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  • New book shares lessons learned from helping labour markets adjust to globalization October 11, 2019
    A WTO publication on policies implemented by governments to help labour markets adjust to globalization was launched at the Public Forum on 11 October. It examines case studies on labour adjustment programmes and provides an extensive review of literature on this topic to highlight how governments are working to make international trade more inclusive.
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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