Currency risk is profit moving because revenue and costs sit in different currencies. Businesses selling imported goods in Turkish lira are the classic case: cost is committed in foreign currency, the sale is made in lira, and when the rate climbs the replacement cost of the item on the shelf catches up with the selling price. The risk builds while the stock sits.
The ways to manage it are: tying the price list to a currency band and updating it once a set threshold is crossed, raising inventory turnover so foreign-currency goods spend less time on the shelf, and matching the currency of revenue and costs wherever possible. For a business selling into North America in dollars the risk runs the other way and creates a natural hedge. Costing at replacement cost rather than at the exchange rate on the day the goods arrived stops what looks like profit from falling short of what it takes to restock.
The ways to manage it are: tying the price list to a currency band and updating it once a set threshold is crossed, raising inventory turnover so foreign-currency goods spend less time on the shelf, and matching the currency of revenue and costs wherever possible. For a business selling into North America in dollars the risk runs the other way and creates a natural hedge. Costing at replacement cost rather than at the exchange rate on the day the goods arrived stops what looks like profit from falling short of what it takes to restock.
The ways to manage it are: tying the price list to a currency band and updating it once a set threshold is crossed, raising inventory turnover so foreign-currency goods spend less time on the shelf, and matching the currency of revenue and costs wherever possible. For a business selling into North America in dollars th…
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