Small importers can experience significant adverse effects from currency fluctuations, transforming expected profits into losses due to unanticipated shifts in exchange rates. Two primary risks—transaction risk and budget risk—pose challenges in maintaining stable profit margins. Small firms need to be aware of these risks and can utilize available hedging tools to protect against currency volatility, ensuring better financial planning and stability. Implementing strategies to hedge against currency risk may seem challenging, but it can yield substantial benefits, allowing businesses to maintain profitability despite market fluctuations.
When you import goods, raw materials, or components priced in foreign currency, you take on transaction and budget risks.
Learning how to protect against exchange-rate risk is easier than many owners think, and the payoff can be remarkable.
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