General

In the past year, the US dollar has fluctuated between 6.30 and 7.32 against the Chinese yuan, with a maximum fluctuation of 16%. Although two-way fluctuations are normal and there will be no "unilateral market" in the Chinese yuan exchange rate, what should be done for foreign trade in the short term? How can foreign trade merchants quickly identify foreign exchange risks when facing increasingly severe exchange rate risks? How to choose the appropriate foreign exchange tool? It has still become a difficult problem that lingers in the minds of many foreign trade people How to handle foreign trade? What is the "three step method of foreign exchange risk management" commonly used by foreign exchange experts? Throughout the article, I hope to find an answer for friends who are troubled by how to do foreign trade.

How to Conduct Foreign Trade: Identifying Foreign Exchange Risks

Foreign exchange risk has two core factors, one is cross currency risk, and the other is cross term risk.

Cross currency risk refers to the inconsistency in the currencies of foreign trade merchants' payments and receipts, resulting in a demand for exchange; Cross term risk refers to the risk of time mismatch caused by inconsistent payment and receipt times or pricing times of foreign trade merchants.

Identifying foreign exchange risks involves identifying potential foreign exchange risks based on one's own business capital flow. It is recommended that foreign trade merchants sort out their own business capital flow and identify the foreign exchange risks they face.

Risk is generally divided into two parts. One is cross currency risk: the main receiving currencies are USD, JPY, EUR, CNY; The main payment currencies are USD, JPY, and CNY. Secondly, there is a cross term risk: there is a mismatch between the collection term and the payment term.

How to Do Foreign Trade: Understanding Foreign Exchange

After identifying their own foreign exchange risks, it is necessary to have a certain understanding of the foreign exchange market. Firstly, we need to recognize that "our foreign trade merchants are not equal to professional foreign exchange traders". While focusing on the main business, you should have some basic understanding of the foreign exchange market, including foreign exchange market prices, influencing factors, etc.

1. Foreign exchange market price

Is the price seen online better than that on the payment platform? There are two concepts in this.

Wholesale price: Refers to the price of transactions between banks, which non banking institutions cannot obtain. This means that we cannot enjoy it. The exchange rates we often see on various financial websites are wholesale prices;

Retail price: Refers to the bank's quoted price for customers, commonly including the domestic bank's spot exchange buying price, overseas bank's wire transfer quoted price, etc. This price is the bank's exchange price for corporate and individual customers, and is true and effective.

Generally speaking, wholesale prices are better than retail prices. Foreign trade merchants should refer to retail prices when pricing goods and exchanging payments.

There are two RMB exchange rates, mainly for the RMB exchange rate. The RMB exchange rate in Chinese Mainland is the onshore exchange rate, and the offshore exchange rate outside Chinese Mainland.

The basic trend of the offshore and onshore RMB exchange rates is the same, but due to differences in market environment and regulatory policies, volatility is different, and the offshore RMB exchange rate changes will be more sensitive.

In addition, foreign exchange transactions that do not involve the Chinese yuan are usually referred to as pure foreign exchange transactions. Foreign trade merchants pay more attention to the exchange rate related to RMB in their daily lives, and it is easy to overlook the exchange rate for pure foreign currency exchange, which may also cause significant exchange losses.

2. Factors affecting the foreign exchange market

Foreign trade merchants not only need to understand the basic foreign exchange prices, but also need to understand some basic foreign exchange influencing factors and the logic of exchange rate fluctuations.

Among them, there are factors that affect the exchange rate, such as economic data, economic policies, capital markets, and non economic factors.

Foreign trade merchants should focus on three aspects: important data, including China's import and export data, US inflation and employment data, and stock market trends; Important time, pay attention to the release time of these important data; Important exposure, it is important to pay attention to the timing of one's own capital inflows and outflows, and try to avoid the release time of important data, as the release time of important data can cause significant changes in the foreign exchange market and pose significant risks.

Exchange rate fluctuations are also logical. In addition to understanding basic data, friends of foreign trade merchants can also understand how these data affect exchange rate trends.

Taking US data as an example, when US employment data slows down and CPI decreases month on month, the Federal Reserve will slow down the pace of interest rate hikes, leading to a decrease in the value for money ratio of US assets and a decrease in the popularity of US dollar assets, ultimately leading to a depreciation of the US dollar.

How to do foreign trade: using foreign exchange

After identifying foreign exchange risks and understanding the trends of the foreign exchange market, friends from foreign trade merchants began to use foreign exchange products.

1. Make good use of graphics

When exchanging, it is important to know the current level of exchange rate and the current trend of exchange rate.

Try to avoid making large transactions at the highest and lowest points. For example, the current exchange rate is at a high point of nearly 30 days. If there is no urgent need for funds, it is better to use separate settlement instead of conducting a large amount of foreign exchange settlement, and exchange every 100 points. This can not only enjoy the advantage of an exchange rate increase, but also prevent losses caused by a decline in the exchange rate.

2. Make good use of prices

When choosing a collection and payment product, foreign trade merchants should also fully consider the impact of exchange rates, choose transparent exchange rates, preferential exchange rates, and reduce exchange losses.

3. Make good use of the product

If you have high timeliness requirements and need to make payment immediately after receiving the funds, you can choose to exchange them in real-time, and the exchange rate is visible. But if everyone is not in a hurry to outflow, when the exchange rate is relatively high, they should first make partial exchanges and lock in some profits. Among them, real-time redemption requires attention to update frequency and exchange rate prices.

However, if you have excess funds in your account, in order to obtain a better exchange rate, you can use the appointment redemption function. Reservation exchange supports foreign trade merchants to set a better exchange rate than the current market exchange rate, and the system automatically monitors and completes transactions. Free of charge, excellent exchange rate, and more worry free.

If foreign trade merchants have funds to enter their accounts in the future, in order to avoid foreign exchange risks, they can use forward foreign exchange locking to avoid risks.

4. Make good use of service

The business model of foreign trade merchants is still quite complex and requires the support of a professional service team. Wanlihui Foreign Trade B2B Collection and Payment Solution provides professional foreign exchange consulting services for our foreign trade merchants. It provides professional foreign exchange solutions based on customer fund models, analyzes exchange rate trends, and interprets hot events.

That's all for the three-step approach to foreign exchange risk management, which includes "identifying risks, identifying foreign exchange, and using foreign exchange". I hope it will be helpful to you.