What measures do enterprises take in Zhihu in response to exchange rate fluctuations?

In order to reduce exchange rate risk, enterprises can usually adopt the following three methods: flexible use of international trade settlement methods, application for international trade financing, and use of foreign exchange derivatives.

Flexible use of international trade settlement methods

In terms of settlement methods, the common international trade settlement methods mainly include prepaid payment and documentary credit, each of which has different functions in reducing exchange rate risk and needs to be mastered flexibly.

For exporters, under the expectation of RMB appreciation, advance receipts can be used, because according to the current foreign exchange management regulations of the country, advance receipts are current account receipts, and enterprises can keep cash to settle foreign exchange at any time, and can decide when to settle foreign exchange according to their own judgment on the foreign exchange market. Of course, when exporters expect the RMB to depreciate, they seldom use advance payment for settlement.

For documentary letter of credit settlement, when RMB appreciation is expected, we should use sight letter of credit as much as possible to collect foreign exchange as soon as possible; When RMB is expected to depreciate, we should use forward or deferred payment letters of credit as far as possible to delay the collection of foreign exchange.

Apply for international trade financing

Enterprises can also reduce risks by applying for international trade financing from banks. Under the expectation of RMB appreciation, we hope to collect foreign exchange as soon as possible after the goods are exported to avoid exchange rate risks. This can be achieved by applying to the bank for trade financing such as export bill, bill discount and export factoring.

Export draft refers to the complete set of documents submitted by the exporter after the goods are shipped in the bank with recourse, that is, the exporter can obtain the foreign exchange receivable under the export goods in advance by applying for export draft from the bank after the goods are shipped. According to the current foreign exchange management regulations of the state, the foreign exchange funds obtained by exporters after handling export bills can be settled, thus achieving the purpose of reducing exchange rate risks.

Discounting bills means that banks reserve the right of recourse to purchase the unexpired bills that have been accepted by financial institutions, that is, exporters can realize the spot collection of forward foreign exchange by applying to banks for discount bills, and the foreign exchange obtained by exporters in advance can be kept as cash or settlement, thus reducing exchange rate risks.

Export factoring business refers to the comprehensive services such as account management and collection, bad debt guarantee, financing, etc., provided to the accounts receivable formed after the exporters export goods under the condition that the exporters collect money by commercial D/A or credit sales. After the exporter transfers the creditor's rights of accounts receivable to the export factor, he can obtain financing, and the foreign exchange accounts receivable obtained by the exporter in advance can be settled according to the current foreign exchange management regulations of the state, thus achieving the purpose of reducing exchange rate risk.

Use of foreign exchange derivatives

Enterprises can also lock in and reduce exchange rate risk through foreign exchange derivatives trading. At present, the common foreign exchange derivatives include foreign exchange forward, foreign exchange option and foreign exchange swap.

Foreign exchange forward allows customers and counterparties to agree on the amount, exchange rate and delivery period of future foreign exchange transactions, so as to determine the exchange rate in advance. Foreign exchange options give option buyers the right to buy or sell a specific currency at a certain price in a certain period of time, helping enterprises to lock in the maximum gains or losses brought by exchange rate changes. Foreign exchange swaps allow companies and counterparties to replace their low tolerance exposure with high tolerance exposure.

In order to reduce exchange rate risk, enterprises can usually adopt the following three methods: flexible use of international trade settlement methods, application for international trade financing, and use of foreign exchange derivatives.

Flexible use of international trade settlement methods

In terms of settlement methods, the common international trade settlement methods mainly include prepaid payment and documentary credit, each of which has different functions in reducing exchange rate risk and needs to be mastered flexibly.

For exporters, under the expectation of RMB appreciation, advance receipts can be used, because according to the current foreign exchange management regulations of the country, advance receipts are current account receipts, and enterprises can keep cash to settle foreign exchange at any time, and can decide when to settle foreign exchange according to their own judgment on the foreign exchange market. Of course, when exporters expect the RMB to depreciate, they seldom use advance payment for settlement.

For documentary letter of credit settlement, when RMB appreciation is expected, we should use sight letter of credit as much as possible to collect foreign exchange as soon as possible; When RMB is expected to depreciate, we should use forward or deferred payment letters of credit as far as possible to delay the collection of foreign exchange.

Apply for international trade financing

Enterprises can also reduce risks by applying for international trade financing from banks. Under the expectation of RMB appreciation, we hope to collect foreign exchange as soon as possible after the goods are exported to avoid exchange rate risks. This can be achieved by applying to the bank for trade financing such as export bill, bill discount and export factoring.

Export draft refers to the complete set of documents submitted by the exporter after the goods are shipped in the bank with recourse, that is, the exporter can obtain the foreign exchange receivable under the export goods in advance by applying for export draft from the bank after the goods are shipped. According to the current foreign exchange management regulations of the state, the foreign exchange funds obtained by exporters after handling export bills can be settled, thus achieving the purpose of reducing exchange rate risks.

Discounting bills means that banks reserve the right of recourse to purchase the unexpired bills that have been accepted by financial institutions, that is, exporters can realize the spot collection of forward foreign exchange by applying to banks for discount bills, and the foreign exchange obtained by exporters in advance can be kept as cash or settlement, thus reducing exchange rate risks.

Export factoring business refers to the comprehensive services such as account management and collection, bad debt guarantee, financing, etc., provided to the accounts receivable formed after the exporters export goods under the condition that the exporters collect money by commercial D/A or credit sales. After the exporter transfers the creditor's rights of accounts receivable to the export factor, he can obtain financing, and the foreign exchange accounts receivable obtained by the exporter in advance can be settled according to the current foreign exchange management regulations of the state, thus achieving the purpose of reducing exchange rate risk.

Use of foreign exchange derivatives

Enterprises can also lock in and reduce exchange rate risk through foreign exchange derivatives trading. At present, the common foreign exchange derivatives include foreign exchange forward, foreign exchange option and foreign exchange swap.

Foreign exchange forward allows customers and counterparties to agree on the amount, exchange rate and delivery period of future foreign exchange transactions, so as to determine the exchange rate in advance. Foreign exchange options give option buyers the right to buy or sell a specific currency at a certain price in a certain period of time, helping enterprises to lock in the maximum gains or losses brought by exchange rate changes. Foreign exchange swaps allow companies and counterparties to replace their low tolerance exposure with high tolerance exposure.

Xunhui was founded by financial experts from foreign investment banks, providing overseas collection and exchange rate management services for enterprises with the help of financial technology.