What is the profit loss currency for the importer exporter?


About how importers and exporters should recognize gains and losses due to changes in exchange rates on transactions with foreign partners, we talk with Jack Maliszewski, chief economist DMK.

Marcin Dziadkowiak, Bankier.pl Sir Jack, you usually explains to readers Bankier.pl and predicts the situation on the currency market. This time I think it would be worthwhile to raise some fundamental issues for entrepreneurs who do business abroad. Often among them the question arises what is profitable and what currency loss for the importer and the exporter?

Jacek Maliszewski, chief economist DMK: Top will show you an example. Imagine the situation here. Importer (the same applies in the case of exporters, but the present situation as an example for importers) ordered from a foreign supplier of goods worth 300 thousand. dollars. Supplier delivered the goods and issued an invoice for that amount. The payment date for the invoice is 30 days.

On the day when the invoice was received by the importer and is recorded, the USD EUR was 4.00 (I will use the round prices for ease of calculation). The importer decided to take a chance and buy dollars right away on the day when it received the invoice (if bought dollars immediately after the course 4.00, or course posting invoices not have to bear any foreign exchange risk), but decided to wait until the USD EUR little falls.

A week passed, and in fact the USD EUR fell to 3.95. At this point, the importer decided to buy 100 thousand. dollars to 1/3 have set the cost of the payment of the invoice in terms of gold. It does not matter if the importer has bought the 100 thousand. dollars in cash and now keeps those dollars on the foreign exchange account or bought forward contracts for cash. The effect will be the same. But let's assume that it was not a forward, but the purchase of dollars for the cash.

The importer has so at this point bought 100 thousand. dollars at the rate of 3.9500, which gave 395 thousand. Golden.

Passes the second week and the USD EUR falls to the level of 3.9000. At this point, the importer decides to buy another 100 thousand. dollars to protect already 2/3 of the nominal value of the invoice. Importer again buy dollars in cash, spending for this purpose 390 thousand. Golden. Dollars holds a foreign currency account.

Marks the third week and the USD EUR falls to the level of 3.85. At this point, the importer buys the last missing "a hundred" dollars, spending for this purpose 385 thousand. Golden. After purchasing the importer shall pay the invoice (300 thousand. Dollars), by sending dollars to the account of the supplier of the goods.

This example is very graphic. But now the question arises whether at these three operations in the context of the currency, the importer has suffered a loss, earned something extra, whether these transactions were neutral from the point of view of profit loss?

Exactly. Perhaps some people have responded to this question by saying: "The importer has suffered a loss, because he bought the first 100 thousand. Dollars at the rate of 3.95, and they have lost their value when the USD EUR rate fell to 3.85".

Others would say: "Importer gained extra benefit, since the purchasing invoice was credited at the rate of 4.00, while the average purchase rate of currency amounted to 3.90, so it was a 10 penny denomination advantage to 300 thousand. Dollars, or 30 thousand. EUR profit. Perhaps you will be those who say that these transactions had no impact on the financial result.

So who is right?

Before answering this question, I have answered by a number of fundamental issues. Because otherwise things are, when we consider the event business for foreign exchange in terms of accounting (accrual basis). In other hand, when we consider this event in the mouth of cash (cash).

In this particular case, we just both accounting treatment, as well as cash gave the same answer the importer received extra benefits.

Let's look at accounting treatment. Importer booked invoice at the rate of 4.00 USD EUR, while the average purchase rate dollar (average of three identical transactions of 100 thousand. Dollars each) was 3.90. I'm not a whiz of accounting, but did not make a mistake probably, if simplification and say that there were positive exchange rate differences accounting for the amount of 30 thousand. gold with this particular economic event. Wife carrying suits me what is true, that you still need to take into account the rate at which the currency entered the bank account (purchase rate, which is 3.90 as an average) and the odds that the currency came from the account (in our case, payment for providers followed the course 3.85). It would mean that the previously mentioned 30 thousand. EUR exchange rate gains would be reduced by 5 thousand. gold negative differences. Eventually, therefore, foreign exchange gains amounted to 25 thousand. Golden.

And what about the event from the point of view of cash?

As a longtime practice, the more I appreciate the recognition of cash, cash business. According to me, the accounting treatment is often only a virtual image of reality. In cash terms we need at this point to make the additional assumption that simplify our reasoning.

Assume that the importer when bringing goods from abroad has set a fixed price of their products (produced on the basis of the goods, which he received from abroad) and the price is expressed for domestic consumers in EUR and can not be changed during the period.

This means that the importer obtains revenue from the sale of gold and the proceeds will not be dependent on the changing exchange rate of USD EUR. This means that revenues in EUR for a consignment of products is constant, its value does not change.

And what about the costs?

These decreased due to a decrease in the USD EUR. For if the importer had to pay a foreign supplier immediately at the time of receipt of goods and invoices that is, when the USD EUR rate was 4.00, the importer would incur a cost of 1 million 200 thousand. EUR (purchase of 300 thousand. dollars at the rate of 4.00) to pay the invoice. Meanwhile, the importer decided to take a chance, to wait and eventually for the purchase of 300 thousand. dollars issued only 1 million 170 thousand. Golden. If the income is fixed, and the cost decreased by 30 thousand. gold, the gross margin increased by 30 thousand. Golden.

So we have the advantage on a cash basis. Remains questionable whether this is really a 30-thousand. golden, because even have to deduct taxes, insurance, etc.. But the fact remains that in the event described the economic importer received an extra benefit, both in the mouth and accounting, as well as on a cash basis. Personally, the more I appreciate the benefit of a cash basis.

Mr. Jack, as against this is the fact that there are importers who after the completion of such an event are convinced that it suffered a loss? Loss arising from the fact that previously bought dollars lost value, lying on the bank account before they were transferred to the account of a foreign supplier?

The reason for such misconceptions are emotions. This fear, greed, or features that are the enemy of every business, whether it is an independent currency trading, or trading in electronics, construction of houses, ships, etc.

When we do not let emotions take control of our mind when we believe that mathematics and simple arithmetic does not lie, always come to the correct conclusions.


Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur excepteur sint occaecat