1-, good post, and do you have much experience with exchange rates? I travel a bit internationally (but not lately, of course) and all I do is exchange at the current market rate. Hedging can be a good choice, but isn’t hedging really for companies with large international operations?

******please involve my company Allied in the reply. As I purchase and manufacture many PPE in China and surrounding Asian countries. Vietnam, Thailand, and Malaysia are known for the production of rubber, so they are known for medical gloves. I always take exchange rate in consideration when paying these manufactures******

2-Currency exchange risk is a reality that most of the companies working with stakeholders and providers internationally faced on a daily base. The truth is that the exchange of money causes losses if not well managed. Big corporations normally have access to what is called the interbank market helping them to make “safer transactions.” But for many medium companies, this is not the case so to study the current trend is a must to make wise decisions. Currencies may change at any time, depending on the political, economic, or security-related situations that happen globally (Singh, 1998). This affects the purchasing power of the buyers and also of the investors affecting directly the buying and consumer behavior. To keep track of exchange currency is a time-consuming task but extremely important for companies that work with different types of international transactions.

Application to the case

When advising about when is the perfect timing to proceed with a payment when currency exchange is involved the best the way is to examine trends of past weeks and also analyze any social and political situations in the country where the transaction will be made. If the the case was today, August 14^th, 2020, if we examine the behavior of the Euro vs Dollar, we can determine that the fluctuation has been stable. Examining from Saturday 22/02/2020 to Tuesday 18/08/2020, August 18^th, yesterday, has been one of the best exchange currency opportunity by 1.1941 USD per 1 euro. The average has been around 1.1182 USD over this period and the lowest on 19 Mar 2020 as 1.0658 USD that can be merely attributed to COVID 19 crisis (Euro (EUR) to US Dollar (USD) exchange rate history, 2020). Only based on this trend I will recommend making the transaction if possible, the same week due that the tendency is that dollar is strengthening. This may impact positively the operation as we are converting the US dollars higher. The fact that since the 13^th of August the change has been stable on 1. 18 as an average gives an indicator that is a good time to proceed with the payment or to analyze as stated before to make it in the following days.

Application to Daily Basis

In my current job, we work with different schools around the world. The business model we manage has a lot to do with this week’s topic. In the specific case of language school, we manage to receive the payment of every study languages abroad packages in Australia, Ireland, New Zealand, and the United States. Since my office is in El Salvador and we use U.S. dollars as a unique currency normally our office is the less affected in terms of exchange of currency due internationally the US dollars often secure payments (International Trade Administration, 2020). But all of the company’s offices need to manage when is the best moment to send the school payments based on the currency exchange. The fact that students buy the packages in advance to their trip gives us the change to reserve with a percentage of the packages to the provider (schools) and pay 4 weeks before the student travels. This gives us a length of time to proceed with payments. These are risky operations when for example a student decides to travel before the expected date because we are forced to make payments based on the client’s decisions but when the dates are respected normally, we made payments when the currency exchange normally benefits us.

In March when the pandemic started to decrease the currency of Australian Dollar for example, what the company did is to pay in advance English abroad packages at a very low price and negotiate to have open dates. In that way we could sell them in the upcoming months at a regular price or in other cases offer incredible discounts because we had a margin to work with. This serves as an incentive to our costumers that were afraid to invest in traveling abroad to the pandemic due to the situation. The prices were so accessible that many costumers that quoted packages around January and maybe could not afford them, found the prices worth the investment in the middle of the pandemic. These decisions are not simple, and need a lot of practice and had risk levels for every operation due that every unfavorable move in currency exchange is deducted from the actual revenue.

References

Euro (EUR) to the US Dollar (USD) exchange rate history. (2020). Retrieved August 20, 2020, from https://www.exchangerates.org.uk/EUR-USD-exchange-…

International Trade Administration. (2020). Foreign Exchange Risk. Retrieved August 20, 2020, from https://www.trade.gov/foreign-exchange-risk

Singh, D. (1998). Managing Currency Risk. Vision, 2(2), 6–10. https://doi.org/10.1177/09722629X98002002002