Young Upstarts

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How Can Exchange Rates Impact Small Businesses

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A difference in currency can play a huge role in your company’s profits, if your local currency depreciates in value relative to a foreign currency, the exchange rate between the two will rise. This means that it would be more expensive for a domestic business to convert its funds into a foreign currency. Meanwhile, an overseas company would be able to benefit from this reduced rate.

Importing Goods from Overseas.

Since so much of our merchandise is now made overseas in countries like China, many businesses will be familiar with the process of importing goods. If you pay your overseas suppliers in your local currency, you will not be affected by any depreciation since no currency conversion is happening during the transaction. However, if you’re paying in your supplier’s native currency instead, your prices will increase due to the new rate. One of the ways businesses look to avoid this scenario is to agree a fixed rate at the beginning of any deal. This will protect you from any major market changes, but may only be possible for companies agreeing to buy in large quantities.

Exporting Goods to Other Countries.

Conversely, a depreciation in the local currency may prove to be good for business if your company is based around exporting goods elsewhere. For example, if your business requires payment in U.S. dollars for its goods, your customer will be able to purchase more of your products for the same amount since the rate favours them. Likewise, accepting a foreign currency may be in your best interests because you will have more dollars available after the conversion. You can use forex trading websites like FX Pro to keep up to date on the different currency rates from countries all over the globe.

Competition in the Marketplace.

Finally, during a period of fluctuation it’s important that you don’t focus inwards and instead react to the rest of the marketplace. Uncertainty can breed new competition, especially from foreign companies who are looking to take advantage of a more favourable exchange rate. Depending on the situation, you may even want to consider lowering the prices of your goods so that local customers can afford them. Alternatively, you could stick with your current prices and hope to ride out this bad period. Depending on your target demographic, you may even find that your goods sell just as well as normal.

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Young Upstarts is a business and technology blog that champions new ideas, innovation and entrepreneurship. It focuses on highlighting young people and small businesses, celebrating their vision and role in changing the world with their ideas, products and services.

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