As a management consultant, I often get asked questions related to currency fluctuations that drive business leaders nuts. Several executives that I have spoken to recently are very concerned about the falling dollar. While some businesses and the US economy are getting some help from a falling dollar, it is playing havoc with other businesses. If you want to believe the iProceed forecast, then be prepared for currency fluctuations on a global basis (while the Bush Administration quietly prefers a weak dollar, other governments are not going to sit idle as they get hurt) during 2005.
The current account deficit and budget deficits in the United States are out of control and most economists are very skeptical of the long-term health of the US economy. That is the major reason why dollar is falling. As the growth opportunities emerge in Brazil, Russia, India, and China (BRIC), investors are less interested in the United States. As a short-term solution to what is a long-term problem, the Bush administration is letting the dollar fall so that some American manufacturers can export American goods overseas. However, this is making life difficult for European exporters who are being priced out not only in Asia but United States as well. So expect them to react soon.
How to protect yourself from currency fluctuations?
The current account deficit and budget deficits in the United States are out of control and most economists are very skeptical of the long-term health of the US economy. That is the major reason why dollar is falling. As the growth opportunities emerge in Brazil, Russia, India, and China (BRIC), investors are less interested in the United States. As a short-term solution to what is a long-term problem, the Bush administration is letting the dollar fall so that some American manufacturers can export American goods overseas. However, this is making life difficult for European exporters who are being priced out not only in Asia but United States as well. So expect them to react soon.
How to protect yourself from currency fluctuations?
- Think global. Diversify your portfolio geographically so that your businesses is not confined to one geography. A falling dollar makes it difficult to get bargains overseas on products and then sell them at a profit in the United States.
- Exploit financial instruments. There are several ways to protect yourself from currency fluctuations. Use them judiciously to give you a cushion.
- Sign long-term contracts with suppliers. And agree on payment in a specific currency. By combining this with use of financial instruments, you can reduce your exposure to currency fluctuations.
- Banking relationships outside the US. American corporations do not always exploit the opportunities available overseas to borrow money. Setting up an offshore subsidiary not only allows you to sell products/services, you may also be able to borrow money from a local bank.
- Barter system. No, it is no longer old-fashioned to talk about barter. Talk to your customers and suppliers (who are themselves looking for ways to protect themselves against currency fluctuations) and see if you can work out barter arrangements.