The Impact of Currency Exchange Rates on Your Business

The Impact of Currency Exchange Rates on Your Business

The position of the small company owner has evolved dramatically due to globalization and the rapid development of information and communication technologies.

In the past, most small firms catered to a local clientele and sourced their inputs from suppliers in the immediate area, generally within the same state and never from beyond the nation.

While globalization has opened up new opportunities for business owners, such as a more extensive customer base to sell to and the ability to shop around for the best price, it has also introduced several new difficulties. Business owners who are also striving to sell to a worldwide consumer base know all too well the challenges of trying to communicate in a foreign language and adapting to the peculiarities of other markets.

Foreign currency exchange rates are a genuinely global phenomenon influencing all worldwide transactions. Still, many small company owners may have yet to have the opportunity to properly comprehend how they affect your firm because of the many other concerns they may have.

The foreign exchange market may significantly impact a company’s bottom line, so it’s essential to understand how it operates and how you can protect yourself from the ups and downs of the currency exchange in Surrey.

What Are Exchange Rates?

The exchange rate is the amount for which one currency may be swapped for another. If the exchange rate is between the dollar and the Canadian dollar, there is quite a difference between these two.

Factors such as economic growth, market interest rates, GDP, and unemployment rate all have a role in establishing the exchange rate level between any two currencies. The elements mentioned above, together with the financing requirements and investment plans of individual financial institutions, inform the constant, around-the-clock currency trading that determines exchange rates in the global financial marketplace.

Since currency markets are open worldwide around the clock, minute-to-minute fluctuations in exchange rates are commonplace.

When the value of one currency increases relative to another, the product is more expensive to domestic consumers and buyers in a weaker economy. You can find the best option to get international currency exchange in Surrey.

Influence of Currency Exchange Rates on Your Business

To begin, let’s assume the perspective of a company owner who must rely on an international vendor for part or all of his company’s essential goods and services.

As our example, we will choose an American business owner who operates a sweater factory. He has settled on a price per pound of wool in Canadian dollars that will allow him to make a profit when purchasing from a supplier in the U.S., where the sheep population is large, and the quality of the wool is high. Things go swimmingly for a while, but when he makes his next purchase a few months later, he finds that his supplier is asking him for 10% extra for the same wool. What happened?

There may be other contributing factors to the rise in price. Still, for the sake of simplicity, we will assume that the fluctuating value of the U.S. dollar relative to the Canadian dollar is to blame. The dollar has dropped by 0.7% against the Canadian currency.

Also, our sweater creator has probably never thought that U.S. dollars aren’t worth much to someone living in Canada, even if that’s how he’s always paid for his purchases in the past. To maintain the same level of profitability, his supplier now requires more U.S. dollars per pound of wool than he did before the U.S. dollar’s value declined.

Adjusting to Fluctuations in Currency Rates

So, how does a small company owner handle the potential impact of fluctuating exchange rates on his bottom line? Keeping abreast of the level and trend of applicable currency rates is paramount to your company’s success (i.e., those of the countries you buy from or sell to).

You may also explore other suppliers domestically or in nations with a more favorable exchange rate if you discover that a weaker Canadian dollar is pushing up the price you have to pay to international suppliers. If the dollar value has gone up since you signed your contracts, you may want to renegotiate them. However, your overseas suppliers will still need to lower their prices to reflect the change.

Since your items are already cheaper in countries where the local currency has increased in value compared to the Canadian dollar, it might be a good idea to market more there.

Lastly, you should talk to a reliable, professional financier about getting the best money exchange in Surrey.

Indirect influence

Even if you don’t directly purchase or sell products or services abroad, fluctuations in the currency rate may affect your company. If you use delivery vehicles to send goods across the nation, and the price of gasoline goes up because of a change in the exchange rate, your shipping costs will go up.

Fluctuations in exchange rates may also impact competition. If the value of your local currency goes down, the cost of importing goods will go up, which could make you import less. As a consequence, sales, profitability, and employment opportunities for domestic companies should improve.

Back to list

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

1 × four =