Importing & Exporting - Essay Example

ge rates.1The problem arises when future payments or remunerations payable in a foreign currency depreciate in value before the foreign currency payment is received and is exchanged into the local currency of the firm. This problem can make or break an exporter’s profit base. It is not that an unexpected increase or decrease in the foreign currency may not be profitable and will always cause a loss. But this entire uncertainty hampers businesses and overall economic growth. There are two kinds of markets within the foreign exchange market: One is the Spot market which involves forex payments for exports delivered with in two or three days as the rates are quoted in line with the exchange rate prevalent at the time of the transaction.

2The other kind of market is the forward or future market which concerns the delivery of exchange rate payments for exports to be delivered with in 3 days or more. Here the banks will use the forex rate on which they are willing to buy or sell the currency with in a month or more after the transaction.3 It can be seen that due to the volatile and unpredictable nature of the forex markets during times of political or economic crisis both the export markets carry a considerable risk for the multinational firms.

There are of course a number of export marketing channels which can become good strategies to combat the foreign exchange risks and transaction exposure for an export firm. Firstly a firm can opt for Transferring exposure.This will involves the transfer of the transaction exposure to another company through the technique asking them to pay for a product in your currency so that they have to bear the transaction exposure resulting from forex uncertainty on their own. Another technique would be to price the export in the local currency of the other firm and demand payment immediately in which case the current spot rate will determine the value in your own currency of the export.

4The other way of using an export payment