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Fluctuations in the Exchange Rates and Risks Management

  The U.S. Dollar is the currency most often used in international trade. If the currency of export sales is different from the currency of the exporting country, for example a Japanese exporter sells in U.S. Dollars, the exporter may encounter exchange risks –risks from fluctuation in exchange rates, for example between the U.S. Dollar and the Japanese Yen.

  In case of the Yen appreciation at the time of converting the U.S. Dollar to Yen, the exporter will get less Yen per U.S. Dollar. Conversely, in case of Yen devaluation the exporter will get more Yen per U.S. Dollar. Hence, in time of currency appreciation in exporting country, it is important that exporter ships the goods earlier, unless a earliest date for shipment is stipulated in the L/C or has been agreed upon between exporter and importer, and present the negotiation documents to the bank immediately.

  The exporter may contact with the bank to sell the U.S. Dollar forward in a so-called forward exchange, at a predetermined rate on an agreed future date, thus he/she will not be affected by the currency appreciation and receive a fixed amount in his/her own currency at a future date.

  In time of currency devaluation in the exporting country, the exporter may delay the shipment, unless the latest date of shipment is stipulated in the L/C or has been agreed upon between exporter and importer and the remaining time in the delayed shipment is enough to present the negotiating documents to the bank before the L/C expiry date.
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