International Financial Management : A Small Business Essay

1229 Words Nov 1st, 2016 5 Pages
International Financial Management
When running a small business in the export sector to Europe, and relying on Euros for every business transaction, a drop in the Euro value will be devastating to the financial ability of the exporter. However, the risk associated with the drop in value of the Euro or any other currency could be mitigated and managed in an effective way. The first option available is to undertake an exchange rate observation for a fixed period to determine the incoming trend in forex exchange. Through this knowledge, the exporter should then avoid making any forward contracts that will involve a fixed value for all export regardless of the exchange rate. This means that in the situation where the Euro will drop, the exporter will not be forced to any contract to retain the same prices but will have to increase the prices of their products to compensate the drop in value of the Euro (Goyal, 2013). This option is quite beneficial especially when the exporter is undertaking big purchases that are extremely prone to any loss in value of the trading currency.
The second option available to the exporter is mixing up the trading currencies. Since the export are meant for Europe, the use of the Euro can be accompanied by the use of the United State Dollar, which is mostly considered the international trading currency. The use of the dollar will help mitigate the loss associated with the Euro. In the global economy, every single commodity can be purchased or bought…

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