In order to reduce exchange rate risks, companies can usually use the following three methods: flexibly use international trade settlement methods, apply for international trade financing, and use foreign exchange derivatives.

Flexibly use international trade settlement methods

In terms of settlement methods, common international trade settlement methods mainly include prepayment and documentary letters of credit. Each settlement method reduces the exchange rate. Risks have different functions and need to be flexibly grasped.

For exporters, when the RMB is expected to appreciate, settlement through advance payment can be more useful, because according to the current national foreign exchange management regulations, advance payment is a current account of foreign exchange collection. Enterprises can retain spot foreign exchange and handle foreign exchange settlement at any time. Enterprises can decide when to handle foreign exchange settlement based on their own judgment of the foreign exchange market. Of course, when exporters have expectations of RMB depreciation, they are less likely to use advance payment settlement.

For settlement by documentary letter of credit, when the RMB is expected to appreciate, sight letters of credit should be used as much as possible to collect foreign exchange as soon as possible; when the RMB is expected to depreciate, long-distance settlement should be used as much as possible. Settlement of L/C on due date or deferred payment, deferring collection of foreign exchange.

Apply for international trade financing

Enterprises can also reduce risks by applying to banks for international trade financing. When there is an expectation of appreciation of the RMB, after the goods are exported, they hope to avoid exchange rate risks by collecting foreign exchange as quickly as possible. To this end, they can apply to the bank for export bill discounting, export factoring and other trade financing.

Export bill refers to the bank's right of recourse to purchase the full set of documents submitted by the exporter after shipping the goods. That is, the exporter can obtain the export amount in advance by applying to the bank for export bill after shipping the goods. Foreign exchange receivables under goods. According to the current national foreign exchange management regulations, the foreign exchange payments obtained by exporters after handling export bills can go through foreign exchange settlement procedures, thus achieving the purpose of reducing exchange rate risks.

Bill discounting refers to the bank retaining the right of recourse to purchase undue bills that have been accepted by financial institutions. That is, the exporter applies to the bank for bill discounting business to realize the immediate conversion of forward receipts. The foreign exchange obtained by the merchant in advance can be retained in cash or go through the foreign exchange settlement procedures, thereby achieving the purpose of reducing exchange rate risks.

The export factoring business refers to the accounts receivable formed by the export factor after the exporter exports the goods when the exporter uses a commercial acceptance document or a credit sale to collect the payment. Provide comprehensive services in accounting management and collection, bad debt guarantee and financing. After the exporter transfers the claims on accounts receivable to the export factor, it can obtain financial facilities. The foreign exchange receivables obtained by the exporter in advance can be settled in accordance with the current national foreign exchange management regulations, thus achieving a lower exchange rate. purpose of risk.

Using foreign exchange derivatives

Enterprises can also lock in and reduce exchange rate risks through foreign exchange derivatives transactions. Currently, the more common foreign exchange derivatives include foreign exchange forwards, foreign exchange options and foreign exchange swaps.

Foreign exchange forward allows customers and counterparties to agree on the amount, exchange rate and delivery period of future foreign exchange transactions, thereby determining the exchange rate in advance. Foreign exchange options give the option buyer the right to buy or sell a specific currency at a certain price within a certain period of time, helping companies lock in the maximum gain or loss caused by exchange rate changes. Foreign exchange swaps allow companies and counterparties to replace their lower risk exposures with higher risk exposures.

In order to reduce exchange rate risks, companies can usually use the following three methods: flexibly use international trade settlement methods, apply for international trade financing, and use foreign exchange derivatives.

Flexibly use international trade settlement methods

In terms of settlement methods, common international trade settlement methods mainly include prepayment and documentary letters of credit. Each settlement method reduces the exchange rate. Risks have different functions and need to be flexibly grasped.

For exporters, when the RMB is expected to appreciate, settlement through advance payment can be more useful, because according to the current national foreign exchange management regulations, advance payment is a current item of foreign exchange collection. Enterprises can retain spot foreign exchange and handle foreign exchange settlement at any time. Enterprises can decide when to handle foreign exchange settlement based on their own judgment of the foreign exchange market. Of course, when exporters have expectations of RMB depreciation, they are less likely to use advance payment settlement.

For settlement by documentary letter of credit, when the RMB is expected to appreciate, sight letters of credit should be used as much as possible to collect foreign exchange as soon as possible; when the RMB is expected to depreciate, long-distance settlement should be used as much as possible. Settlement of L/C on due date or deferred payment, deferring collection of foreign exchange.

Apply for international trade financing

Enterprises can also reduce risks by applying to banks for international trade financing. When the RMB is expected to appreciate, after the goods are exported, they hope to avoid exchange rate risks by collecting foreign exchange as quickly as possible. To this end, they can apply to the bank for export advance, bill discounting, export factoring and other trade financing to achieve this.

Export bill refers to the bank's right of recourse to purchase the full set of documents submitted by the exporter after shipping the goods. That is, the exporter can obtain the export amount in advance by applying to the bank for export bill after shipping the goods. Foreign exchange receivables under goods. According to the current national foreign exchange management regulations, the foreign exchange payments obtained by exporters after handling export bills can go through foreign exchange settlement procedures, thus achieving the purpose of reducing exchange rate risks.

Bill discounting refers to the bank retaining the right of recourse to purchase undue bills that have been accepted by financial institutions. That is, the exporter applies to the bank for bill discounting business to realize the immediate conversion of forward receipts. The foreign exchange obtained by the merchant in advance can be retained in cash or go through the foreign exchange settlement procedures, thereby achieving the purpose of reducing exchange rate risks.

The export factoring business refers to the accounts receivable formed by the export factor after the exporter exports the goods when the exporter uses a commercial acceptance document or a credit sale to collect the payment. Provide comprehensive services in accounting management and collection, bad debt guarantee and financing. After the exporter transfers the claims on accounts receivable to the export factor, it can obtain financial facilities. The foreign exchange receivables obtained by the exporter in advance can be settled in accordance with the current national foreign exchange management regulations, thus reducing the exchange rate. purpose of risk.

Using foreign exchange derivatives

Enterprises can also lock in and reduce exchange rate risks through foreign exchange derivatives transactions. Currently, the more common foreign exchange derivatives include foreign exchange forwards, foreign exchange options and foreign exchange swaps.

Foreign exchange forward allows customers and counterparties to agree on the amount, exchange rate and delivery period of future foreign exchange transactions, thereby determining the exchange rate in advance. Foreign exchange options give the option buyer the right to buy or sell a specific currency at a certain price within a certain period of time, helping companies lock in the maximum gain or loss caused by exchange rate changes. Foreign exchange swaps allow companies and counterparties to replace their lower risk exposures with higher risk exposures.

Xunhui was founded by financial experts from foreign investment banks and uses financial technology to provide enterprises with overseas collection and exchange rate management services.