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  • Heads of WTO and development banks voice support for trade finance amid COVID-19 crisis July 1, 2020
    The heads of the WTO and six multilateral development banks on 1 July issued a joint statement promising to address shortages in trade finance, so that financial market stresses arising from the COVID-19 crisis do not prevent otherwise-viable trade transactions, including for essential goods such as food, drugs and medical equipment. They committed to do […]
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  • Panels established to review Indian tech tariffs, Colombian duties on fries June 29, 2020
    WTO members agreed at a meeting of the Dispute Settlement Body (DSB) on 29 June to a request from the European Union for a dispute panel to examine India’s tariffs on certain high-tech goods. The DSB also agreed to an EU request for a panel to review Colombia’s anti-dumping duties on frozen fries from Belgium, […]
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  • WTO report on G20 shows moves to facilitate imports even as trade restrictions remain widespread June 29, 2020
    While import-restrictive measures introduced by Group of 20 (G20) economies continue to cover a growing share of trade, the WTO’s latest biannual monitoring report on trade measures — the first to cover a time period coinciding with the coronavirus pandemic — points to significant moves to facilitate imports, including products related to COVID-19. During the […]
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  • DDG Wolff: WTO acceding governments reconfirm value of multilateral trading system June 29, 2020
    At a time when the WTO is under heightened scrutiny and reform of the WTO is a subject of concern for all, the efforts undertaken by acceding governments to join the organization are a force for change, Deputy Director-General Alan Wolff said on 29 June. Speaking at the virtual opening session of the WTO’s Accessions […]
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Exchange rate insurance



 

 

 

Exchange rate insurance could be a good way to neutralize potential risks resulting from adverse foreign currency fluctuations. Indeed, specialised insurance companies provide this kind of service to companies involved in International trade transactions.

This type of insurance could take the following forms:

 

Import-Export Exchange rate insurance.

When an Importer or an Exporter must receive or honour a payment in a foreign currency, they can benefit from Import-Export Exchange rate insurance. In this case the policyholder will secure a fixed exchange rate. A premium will be charged based on the currency covered and the length of the period considered.

Tender Exchange rate Insurance

During a Tendering process, an Exporter needs to have a fixed exchange rate in order to bid in the best conditions. Indeed, adverse currency fluctuations are likely to occur between the time when the bidding is assessed and the tender is awarded. This is where the tender Exchange rate insurance comes in as good way to cover this kind of risks. Indeed in this case the exchange rate is guaranteed during the whole period and as a result the Bidder can avoid uncertainties that might compromise the profitability of the project.

 

Fixed rate:

In this case, the insurance will charge a premium to the Importer or the Exporter, who in turn will benefit from a fixed exchange rate. As result, the policyholder prevent any currency risk which might impact his profit margin / procurement costs. However in this case it will not be possible to take advantage of favourable exchange rate evolution.

Fixed rate with shared profits.

Here the exchange rate is still guaranteed, but the potential gains resulting from favourable currency fluctuations are shared between the underwriter and the policyholder. The proportion in which profits are shared could vary from 70%/20% to 50%/ 50%.

However in both cases the risk is 100% covered

 

Please click on the links below for more hedging techniques