Exchange Rates

WOODY_2-2

Help me please...

Can someone explain in plain english some bullet type points of what you need to consider when buying from abroad when dealing with suppliers.

For example what do you need to take into consideration when say purchasing from europe you would generally trade in euro's but say the supplier is from Finland what measures can you put in place say if the fin mark is strong against the euro and how could you cover yourselves so you take advange of the exchange rate as well i.e the supplier is making good profits but not necessarily passing them onto you. Also where are the best places for this source of information and advice??

For example I know you could put a tolerance band against the exchange rate so if the exchange rate moves either way to your advantage or disadvantage both customer and supplier will take the hit rather than it being a one way. This way you both take the good with the bad. But that's ok when your just dealing with the one exchange rate.

But when say when the supplier is trading in another foreign currency and trading to you in another what things can you do so you ensure you get the gain as well as them... If you know what I mean... Its more from a commercial point of view than a consumer view I'm looking for.

Look forward to hearing from any body who may be able to shed some light on this topic for me...

jaimeo

So you are saying that if your european supplier gets lucky with a strong euro compared to his suppliers currency, some of the extra margin he gets from you, should actually be passed on to you?

The only way around this I think would be extreme transparency in your dealings whereby your supplier and you agree that you will always pay X% margin for your goods, irrespective of exhange rate fluctuations.

Also, it would depend on which goods your supplier is sourcing elsewhere.
Why dont you look at widening your supplier base slightly to take advantage of the most favourable rates?

J

cash99

If your supplier is from Finland, why are the selling in Euros. If they sell in Finnish Marks you are the only party exposed to a currency risk. The same applies if you are buying from a supplier in the Eurozone in Euros.

Most business are not concerned with making gains on currency movements, as most of them realise that by playing this game they can also make substantial losses. Most try to eliminate or manage the risks.

There are a number of options to eliminate currency risk as follows:

1. Arrange with your supplier to be invoiced in £. If they have a number of customers in the UK they may do this already, and it is probably easier for them to hedge against the currency. You may be able to agree a fixed exchange rate for a period, and typically these are not adjsuted until the currency moves +/- a certain percentage. This is probably the tolerance band you have heard of.

2. Do nothing - Take currency gains and losses as they arise. If the currency does not move that much the net gain or loss may be small.

3. Hedge against the currency movement. This covers various options, but basically comes down to minimising or eliminating your currency risk by paying money to a bank. e.g. if you have to pay €1000 in 60 days time you can buy a forward contract so that you bank will sell you €1000 in 60 days for an agreed £ amount , plus their commission of course.