Do you invest in overseas currency, perhaps via buying or selling products? If so, it is imperative that you understand the ins and outs of exchange rates. Let’s take a closer look!
The ways in which exchange rates impact businesses
There are a number of ways in which exchange rates affect businesses, and there are a number of factors which influence these rates:
InflationInterest rateMonetary policyTourismGeopoliticsThis is far from an extensive list, but these are some of the major causes of fluctuating currency values. But what exactly does the resulting shift in value mean for your business?
How to track exchange rates in real time
It might sound as though currency values change without warning, but we know that’s not true. Remember the factors we listed above? All of these reliably impact how exchange rates change. If you track these issues and keep an eye on market prices, you can sometimes predict shifts before they happen. This is an important skill to master, especially if your business invests in foreign currency.
Where can you find the best UK trading platforms which will help you keep track of exchange rates and other market events? LeapRate comprehensively reviews brokers and trading platforms so that you always know what to expect.
Let’s take a look at some of the reasons most businesses must be aware of exchange rates.
Cost of buying supplies overseas
One of the main reasons exchange rates are so important to businesses around the world is manufacturing and the cost of other materials. As currency values change, the prices of services or supplies fluctuate too.
Let’s say that a coffee shop wants to order beans directly from Brazil while paying in USD. The price of the beans is the same, $100, for a few months, but suddenly the price is significantly higher with no warning as to the price increase. What happened?
At some point, the value of USD decreased by 15%. That means that the dollar is worth 15% less than it was before the decrease. The buyer was paying for $100 USD worth of beans, but now the dollar is worth 15% less than it used to be. In order to purchase the same amount of beans, the price increases by 15% to cover the loss.
Whether your business stands to gain or lose funds, it is important to be aware of how exchange rates can impact your business’ spending.
Cost of selling overseas
Selling your products overseas can also lead to money fluctuations due to exchange rates. This is especially true if you submit your invoices in foreign currency. If the exchange rate moves against your business, you might end up receiving less money for the same services or products. This can be partially mitigated by issuing invoices in domestic currency, which ensures that you will receive the full amount invoiced regardless of the buyer’s exchange rate. The trade-off is that you then risk outpricing yourself. If the amount buyers are paying increases too much, they might look for cheaper suppliers.
Trading doesn’t have to be difficult, and neither does tracking exchange rates so that you can make informed investment choices. Keep our tips in mind and you’ll be trading in no time.
