Change Financial Solutions
  Home About Contact  
Export Assistance
Guides to Exporting
Finding Export Finance
Export Consultants
Export Documentation
Register as an exporter
Proforma Invoice
Commercial Invoice
Letters of credit
Packing Lists
Exchange Control Forms
Insurance Forms
Customs Documents
Document Completion Guide
Export Training
Training providers
Training calendar
Export Guide
Export Marketing
What is involved in export Marketing?
Export Marketing Channels
Using Export Agents
Finding Export Agents
The Role of Trade Fairs
Preparing to participate in a Trade Fair
Finding Trade Fairs
Inward Bound Missions
Outward Bound Missions
The Internet and Exporting
Website internationalisation
Export portals
Overseas Trade Missions
Embassies and Consulates
Financial Assistance for Export Marketing
ETO Systems
Dealing with Export Environments
Trade Agreements
Export Tools
Export Readiness Checker
Export Checklists
Export Business Planner
Export SWOT Analyser
Country Risk Evaluator
Product map
Translation Resources
Currency Converter
Export Documentation
Document Completion Guide
SA and Foreign Tariff Databases
Export Software & Technology solutions
Tracking tools
Exporting & the internet
Export e-Newsletter
Export Law
Laws affecting Exports
Maritime Insurance
Exchange Control
SA Export Regulations
Trade/Maritime Lawyers
ITC Services

Export Articles

You are here:Export Articles > Foreign Exchange Case Study



Foreign Exchange Case Study - Don't mess with foreign exchange - get the help of experts


Exporter X received an order of USD 100 000 for his products in July 2009 when the USD/ZAR exchange rate was trading at around ZAR8.30/USD. He worked out that he would be receiving R830 000 in three months time when his customer paid him. He took the view that with the rand mostly weakening, he might even get more rands by that time, which could assist him to make a slightly higher margin on his competitively priced products. Change Financial Solutions

His view on the currency market was in fact incorrect (surprise, surprise) and the rand started strengthening. He kept on hoping that the rand would weaken again very soon, and that all would work out as planned. As he was not sure of the exact date he would receive the dollars, he also thought that he would just wait until the dollars arrived by when the rand would hopefully have moved in his favour.

The dollars eventually arrived after more than three months and the bank converted it at a rate of R7.30/USD. Exporter X, who expected to receive R830 000, now received only R730 000. He was down R100 000 on the deal just because of the exchange rate movement, which was more than the profit margin that he had built into his price! He thus made a serious loss on the consignment. In fact, for every one dollar value of the contract he lost one rand.

As you can see from the above case study, the exporter clearly did no risk management and left a lot to chance (he was probably not aware how it would work). More importantly, he did not hedge or protect his forex exposure. By doing nothing he has in fact taken a bet on the currency market (knowingly or unknowingly) and as a result, incurred a huge loss.
The correct procedure for the exporter should have been to have hedged his exposure in July already (on the day that he received the order) and to sell the dollars 3-months forward. By selling forward, he is getting a guaranteed promise from a buyer to buy the dollars from him at some future date but at an agreed upon exchange rate set today. Of course, the forward rate that the two parties agree to will be different from the spot rate (the current rate today) and the premium or discount represents the cost of obtaining such protection. The value of a forward contract is that your future income (in rands) is guaranteed. If he had sold his dollars forward on that day he would have also have received a premium as a result of interest earned and could have  received at least an additional 10 SA cents/dollar, as the interest differentials between the dollar and the rand would have worked in his favour.

The reality is that instead of receiving R 840 000, (R8.30 plus 10c for selling forward) he has only received R730 000 (R110 000 less) – in reality an even bigger loss because of poor risk management.

So what should you do? The world of forex is complicated and it requires expert advice. There are specialists in this field and you should definitely consult them. Of course, your bank can also assist you, but there are private sector forex experts that act as intermediaries and that will work on your behalf to get you better exchange rates from the bank and to advise you how best to minimise your risks, as well as highlighting the process and the pitfalls. They’ll also help you get your timing right. By putting their expertise to work for you, you can protect yourself against forex risk, get better forex rates, and maybe even earn a bit of extra money on your (protected or hedged) exposure.

Written by Mario Moschetta
Change Financial Services

Top of page

© Interactive Reality

Learning to export...
The export process in 21 easy steps
Step 1: Considering exporting
Step 2:Current business viability
Step 3:Export readiness
Step 4:Broad mission statement and initial budget
Step 5:Confirming management's commitment to exports
Step 6: Undertaking an initial SWOT analysis of the firm
Step 7:Selecting and researching potential countries abroad
Step 8: Preparing and implementing your export plan
Step 9: Obtaining financing for your exports
Step 10: Managing your export risk
Step 11: Promoting the firm and its products abroad
Step 12: Negotiating and quoting in exports
Step 13: Revising your export costings and price
Step 14: Obtaining the export order
Step 15: Producing the goods
Step 16: Handling the export logistics
Step 17: Export documentation
Step 18: Providing follow-up support
Step 19: Getting paid
Step 20: Reviewing and improving the export process
Step 21: Export Management
Export Reference
HS Codes
SIC Codes
Country Codes
Airline Codes
Airport Codes
Port Codes
Telephone Codes
Industry specific export control
Electricity Voltages
Transportation Types
Container Types
Hazardous Cargo Symbols
International Trade Agreements
Country Info
Export Documentation
Trading cycle
Export Articles
Export Glossary
Export Acronyms
Export Opportunities
Export portals
Export calendar
Inward Bound Missions
Outward Bound Missions
Trade Fairs SA
International Trade Fairs
Country Info
Country Help
SA Missions Abroad
Missions in SA
SA Representatives
Bilateral Chambers
Export Network
SA Economic Representatives
SA Missions Abroad
Missions in SA
Export Councils
Export Consultants
Export Trainers
Export Agents
Customs Clearing Agents
Trading Companies
Export Financiers
Bilateral Chambers
Government Departments
Trade Associations
Freight Forwarders
Airline Companies
Shipping Lines
Road Haulers
Courier companies
Trade/Maritime Lawyers
World Trade Point Federation
South African Translators
Universities with international Expertise
International Trade Statistics
Import and Export Statistics
Main Trading Partners
Main Export Products
Economic Statistics
SA Statistics
SA Reserve Bank
Data Mapper®
UNCTAD Statistics


     Our sister sites:

Indexing the World


Trade Training





     Other useful links:

Freight & Logistics Gateway

Freight quotes