The Exchange Rate and the Hidden Profit
You pay your supplier with your money, most likely in USD dollar.
If I tell you, today, your money suddenly worth a lot more, would you pay the supplier at the same price for your product?
I am Yuping Wang. I have been sourcing for 20 years. Since I have suppliers all around the world, my eyes are always on the movement of currency value.
If you are buying product from another country, you need to know how to seize the opportunity of getting a better price when the exchange rate is in your favor!
Why Exchange Rate “Changes”?
In the world we live in, the exchange rate changes daily, hourly, in fact, it changes every single minute. Why?
The driving force behind the change is trading. Currency, just like stocks, bonds and commodities (such as oil, corn, gold), currency is a product.
This product of currency is traded in the stock markets on daily basis.
Trading creates demand and supply balance or imbalance. Exchange rate goes up or down when demand and supply change.
Trading alone cannot drive exchange rate change if all exchange systems are fixed-rate based. Since most countries function in a free-market economy, most countries use a floating-rate based exchange system.
In the fixed-rate based exchange system, the country’s central bank buys and sells all foreign currencies at a fixed rate.
The central bank has total control of the rate.
In the floating-rate based system, the exchange rate is determined by the market’s demand and supply.
In reality, there is no absolute fixed or floating exchange rate system.
In a fixed-rate system, black market trading often exists to compensate.
In the floating rate system, central bank often use its monetary policy to influence market’s demand and supply.
How Does Exchange Rate Affect Your Product Price?
The exchange rate is embedded in the supplier’s quote to you.
If you are buying from China, most likely your supplier quotes you in USD dollar. Here is what happens when the exchange rate changes.
- Raise PriceWhen the exchange rate goes down, supplier may raise price, because they receive less money in Chinese Yuan.
- Won’t Say AnythingWhen the exchange rate goes down, the supplier will pocket the extra Chinese Yuan. They won’t say anything unless you ask.
What Should You Do?
You need to pay attention to the exchange rate fluctuation on weekly basis to know exactly what is going on. When exchange rate is in our favor you need to know it is time to ask.
At the time of this blog, the USD dollar is going strong against the Chinese Yuan. This is your TIME to ask and go after your profit.
Students in the Sourcing Warriors Mastermind all learned how to renegotiate when the rate is in their favor. They are getting better prices and celebrating their wins.
If you are running an Amazon FBA or import business, time to take better control and take advantage of the exchange rate changes.