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Roller Coaster Currency Markets!
March 10, 2016 Suhail Karim Beg, Business Development Specialist, Office of Small Business
Tagged: Exporting Tips
For Small Business, export sales generally involve a level of complexity and attention to country and credit risk not present when selling domestically. For example, recent fluctuations in foreign currency markets can have an immediate impact on the credit terms and the supply of financing available to support your foreign transaction.
It’s easy to see how confusing it can get just keeping track of developments. Here’s a brief of currency market activity since the beginning of the year.
The volatility in the US Dollar has been amplified by external global monetary factors in addition to domestic monetary policy. As the Chinese economy teeters and tries to re-balance its growth model inwards, the impact on global trade has had far reaching effects for the rest of the world. Earlier this year, the Yuan was devalued to keep China’s exports strong, but more recently it has been propped up to stem the outflow of dollars. Moody’s has downgraded the outlook on China to “negative”, and a similar sentiment is rippling through emerging markets where currencies see-saw daily with the dollar. Lower growth forecasts had prompted a withdrawal of foreign investment from emerging markets, putting downward pressure on local currencies to an all-time low. By early March, the trend had reversed with emerging market currencies climbing to a recent high. Greater uncertainty also reigns in the EU markets where the Euro is threatened by the trade consequences of Britain leaving the European Union and weak economic data. Meanwhile, the Fed is split on future rate rises (which will affect the dollar’s value), and though US economic growth is expected to remain strong, the dollar appreciated 20% earlier this year only to settle for a fall of 1.8%on a trade-weighted basis by March of this year.
The Challenges facing US Small Business Exporters
It’s normal for risk perception in uncertain times to translate into higher risk premiums as commercial and political risk are reflected in the rates charged to exporters. For those on open account, the risk of non-payment rises as businesses struggle with slower sales and lengthened transaction cycles. Also, a strong dollar will naturally place your market share under threat to lower cost imports or domestic substitution. Does this mean it’s inevitable for you to lose your hard won foreign sales to competitors? Do you need to become a foreign exchange guru to pursue foreign sales?
The 90-95% Solution
We understand that as a small business, serving your customers is your priority wherever they might be. If you are unable to obtain competitive terms to finance your trade from your commercial bank we can help. To learn if you qualify and how we can help you unleash opportunity and reduce risks while covering 90 to 95 percent of your country and credit risks visit us at “Get Started” or contact one of our Export  Specialists.
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