The Exchange Rate And Its Link To Hidden Profit!
You pay your supplier with your money, most likely in USD dollars.
If I told you that, today, your money was suddenly worth a lot more, would you pay your supplier the same price for your product?
I’m Yuping Wang. I’ve 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 products from another country, you need to know how to seize the opportunity of gaining a better price when the exchange rate moves in your favor!
Why Does The Exchange Rate “Changes”?
In the world we live in, exchange rates change daily, even hourly. In fact, they change every single minute. Why?
The driving force behind the change is trading. Currency is just like stocks, bonds, and commodities (e.g. oil, corn, or gold) – currency is a product.
This product of currency is traded in the stock markets every day.
Trading creates balance or imbalance in supply and demand. The exchange rate adjusts upward or downward as supply and demand fluctuate.
Trading alone cannot drive an exchange rate change if all exchange systems are based on fixed rates. Since most countries function in a free-market economy, most countries use an exchange system based on floating rates.
In a fixed rate exchange system, the country’s central bank buys and sells all foreign currencies at a fixed rate. The central bank will have total control over the rate.
In the floating rate system, the exchange rate is determined by the market’s organic 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 a floating rate system, central banks often use their monetary policy to influence the 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 US dollars. Here’s what happens, then, when the exchange rate changes.
- They Raise Their Price. When the exchange rate goes down, your supplier may raise their prices, because otherwise, they’ll receive less money in Chinese Yuan.
- They Won’t Say A Thing. If the exchange rate swings the other way, the supplier will pocket the extra Chinese Yuan. They won’t say anything unless you ask.
What Should You Do?
You’ll need to pay attention to exchange rate fluctuations on a weekly basis to understand exactly what’s going on. When the exchange rate is in your favor, you’ll know that it’s time to ask.
At the time of writing this blog, the US dollar is going strong against the Chinese Yuan. This is your opportune timeto ask and go after that 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’re running an Amazon FBA or import business, it’s time to take control and use the advantage given by the exchange rate changes.