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Exchange Rate Volatility Concerns Everyone, not Only Importers and Exporters

Exchange rate


Exchange Rate Volatility Concerns Everyone, not Only Importers and Exporters

The CEO of an European airline, the cocoa farmer in small farming town in Ghana, the Kenyan student in the UK and the blogger in India, all have a common thing to worry about or be excited with; movements in exchange rate.

Exchange rate volatility is not a concern for only financial institutions, importers and exporters. Exchange rate has become an even greater concern as more and more people engage in some form of international trade, physically or online, which mostly involve exchanging one currency for another in settlement of transactions.

Online Retail (e-commerce)

Growth in e-commerce in an era of globalization has more to do with it than you can imagine. Retail business, which hitherto, was often confined within the boundaries of a country, is now almost borderless. Australians can buy goods from Canada via online shops, which would require an exchange between the two currencies. Similarly, many Africans are shopping online directly from UK and US stores with their visa and mastercard. Items that used to be purchased locally are now compared with foreign options, and a decision made whether to patronize the local product or simply pick a smartphone and purchase it from an e-commerce site in another country.

Exchange Rate Volatility Affects Everyone

Cocoa farmers in Ghana and Cote d’Ivoire are concerned with how much is paid for a bag or a ton of cocoa beans, as this is directly determined by the price of cocoa in the world market (often priced in US$ per ton) and the prevailing USDGHS exchange rate, in the case of Ghana. Whether they know this or not does not matter, as the amount they receive for their hard work throughout the cocoa season finally comes down to the price of cocoa and the exchange rate. Similarly, bloggers in India are concerned with movements in the Indian Rupee against the US dollar, if they’re relying heavily on revenue streams such as Google Adsense.

CEOs of multinational corporations and foreign students are both impacted by changes in exchange rates. Movements in exchange rates can either increase or decrease your income and liability, and during extremely unfavourable movements, businesses have had to shut down, trips cancelled, education shattered, workers laid off, among many other effects.

Read: How Exchange Rate Affects Your Income

Be Concerned Too

Exchange rates movements are a concern for all. There is no full insulation to the movements in your home currency against major currencies such as the US dollar, the British Pound and the Euro. Directly or indirectly, our pockets are impacted by this, and we should be equally concerned as much as the traders on Wall Street follow the news.

Read: How to Benefit When Your Local Currency is Depreciating

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