Question

If a Canadian exporter accepts payments in foreign currency from buyers in the United States, which party bears the currency fluctuation risk? Explain.

The euro has now replaced seventeen national currencies. What are the implications of this development to companies exporting to the European Union?

The manager of the letter of credit division of Citibank in Chicago learns that the ship on which a local exporter shipped goods to Yokohama, Japan, was destroyed by fire. He knows that the buyer in Yokohama will never receive the goods. The manager, however, received all the documents required under the letter of credit. Should the manager pay the exporter or withhold payment and notify the overseas customer in Japan?

Compare the role and responsibility of banks in documentary collections and in letters of credit.

What are the major factors accounting for the resurgence of countertrade?

Answer 1

Question. 1

The party which accepts payment in the foreign currency bears the risk of exchange rate fluctuations. The buyers in the US do not need to worry about the exchange rate fluctuations as they will make the payments in the dollar. Therefore, the US buyers will be paying the same dollar amount irrespective of the USD/CAD exchange rate. However, the Canadian exporter will actually receive different Canadian dollar amounts depending on the USD/CAD exchange rate. If the Canadian dollar depreciates with respect to USD, the exporter will receive more CAD for a given amount of goods. On the other hand, if the Canadian dollar appreciates with respect to USD, the exporter will receive less CAD for a given amount of goods. So, the exchange rate risk is borne by the Canadian exporter.