Sunday, 5 July 2020

CURRENCY FLUCTUATION IN EXPORT TRADE

naira pounds euro dollar
2017 was a particularly challenging year for exports in Nigeria because of the volatility of the exchange rate locally. The Naira had moved from N380/$US$1 the previous year to a peak of N520/US$ and finally settled at N360/US$1 which is the average rate it has maintained at the Investors and Exporters Forex window for almost 2 years.

During that period of volatility, depending on the stage of your transaction- exchange gains and losses were recorded and they were massive! One of the complexities of international trade is currency fluctuation because trade is usually conducted between different countries that use different currencies.

This poses a need for conversion from the local currency to the currency in which the transaction is quoted which is most times the Pounds Sterling,(GBP),the US Dollar (USD) and the Euro (EUR).

It is therefore necessary as an exporter to understand currency fluctuations and the risks it poses for your transactions. In seasons of currency fluctuations, currency hedging allows the exporter to mitigate his risk by hedging the currency position on his transactions to minimize losses that can arise from currency fluctuations.

As an exporter, you can reduce the negative effects of currency instability by keeping the lines of communication with suppliers open, monitoring currency changes regularly and drawing up plans to cope with financial instability.

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