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Price Lists - Domestic Currency

Frequently overlooked is the economic exposure that arises from an export price list expressed in the exporter's own domestic currency.
 

Although the exporter is not exposed to FX transaction risk, the level of his prices converted to local currency by the buyer will fluctuate and affect the volume of sales as goods or services become more or less competitive.
 

Exporters adopting price lists in their own currency to avoid transaction FX risk cannot avoid exposure to economic FX risk which will affect the level of orders.
 

Foreign Currency

With a foreign currency price list, the exporter is exposed to fluctuations in FX rates during the validity of the price list.
 

An exporter wishing to cover FX exposure arising from foreign currency price lists needs to forecast the value of orders likely to be placed during the price list's validity.
 

At any time after the publishing the price list, the exporter can decide to hedge all or a percentage of the forecast FX cashflow by entering into a series of Forward FX contracts for value dates approximately in line with the anticipated FX cashflow. This protects the cashflow from the most volatile part of the FX rate, the Spot Rate.

 
Having entered into these Forward FX contracts, they can be adjusted from time to time at minimal cost to more closely fix revisions to the FX cashflow forecast. The only risk is in the relatively small movements of the less volatile interest rates of the respective currencies.