There are risks in exchange rate fluctuations, and the loss of selling foreign exchange is nearly 10 million

Since 2021, the exchange rates of the US dollar, euro and yen seem to have been falling. When the exchange rate was at a low point, the onshore RMB fell to around 6.3 against the US dollar, and the euro exchange rate also fell below 7.0.

For export sellers, the fluctuation is not only about the exchange rate, but also about the hard-earned money they earn through hard work. Taking the US dollar as an example, if the seller withdraws $100,000, the exchange loss at the exchange rate six months ago and now can be as high as RMB 20,000.

It can be said that the exchange rate is always on the minds of sellers and is closely related to the profits of cross-border sellers. Many big sellers have taken measures to deal with the risk of exchange rate fluctuations. Fortunately, the country has also introduced policies to lower the foreign exchange deposit reserve ratio to stabilize the RMB exchange rate.

The exchange rate continues to rise, and the US dollar has broken through 6.5

In the past two weeks since April 18, the US dollar has continued to rise, and it rose to a recent peak of 6.57 on April 25. Yienjun learned that the current exchange rate of the US dollar fluctuates around 6.55, but the fluctuation is not large.

The appreciation of the US dollar is great news for sellers. Previously, a seller said that he had withdrawn a lot of US dollars from his account for emergency purposes when the exchange rate was low, and now he thinks he has lost a lot.

As of now, the exchange rate is still in an unstable state. For export sellers, if they are not in urgent need of money, they should not make withdrawals for the time being. The US dollar exchange rate is expected to continue to rise in the future.

The central bank lowered the reserve requirement ratio for foreign exchange deposits to stabilize the RMB exchange rate

Against the backdrop of recent US interest rate hikes and RMB depreciation, the central bank has also introduced policies to stabilize short-term fluctuations in the RMB exchange rate.

On April 25, the People's Bank of China decided to lower the foreign exchange deposit reserve ratio of financial institutions by 1 percentage point from May 15, 2022, that is, to lower the foreign exchange deposit reserve ratio from the current 9% to 8%, in order to enhance the ability of financial institutions to use foreign exchange funds.

Due to the continuous depreciation of the RMB, the RMB has returned to the 6.5 era after many months, and the central bank's operation has also caused heated discussions. According to Zhou Maohua, a macro researcher at the Financial Market Department of Everbright Bank, the central bank's early adjustment will help stabilize market expectations.

"The central bank will adjust the foreign exchange deposit reserve tool appropriately according to market conditions. On the one hand, it will increase the supply of foreign exchange, regulate the supply and demand of foreign exchange and promote market balance; on the other hand, it will send a signal of 'stability' in the foreign exchange market and avoid overshooting of the market."

After the news that the central bank "lowered the foreign exchange deposit reserve ratio of financial institutions by 1 percentage point" was released, the onshore and offshore RMB exchange rates against the US dollar rose in response, and rose in the short term. Relevant data showed that the offshore RMB exchange rate against the US dollar appreciated from 6.60 to 6.57, an appreciation of nearly 300 basis points; the onshore RMB exchange rate against the US dollar also appreciated from 6.56 to 6.53, also an appreciation of nearly 300 basis points.

The central bank's move can, to a certain extent, adjust the supply and demand relationship in the foreign exchange market and help stabilize the RMB exchange rate. Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, recently responded to the fluctuations in the RMB exchange rate by saying: "In the future, the RMB exchange rate is likely to fluctuate in both directions and will remain basically stable at a reasonable equilibrium level."

Cross-border foreign exchange sales resulted in a loss of nearly 10 million yuan. It is imperative to deal with foreign exchange risks.

For cross-border e-commerce sellers, the proportion of overseas sales is usually very high. It is reported that Anker Innovations' overseas sales accounted for 96.66%, and LDK's overseas sales accounted for 95.94% in the first half of 2021.

The impact of exchange rate fluctuations on cross-border companies is mainly reflected in the price competitiveness of product exports and product procurement costs, as well as settlement and cash withdrawals. Its impact on the operating performance of cross-border companies is still very large.

Public data shows that the cross-border seller Yongyu Home Furnishing suffered a loss of nearly 10 million yuan due to the sharp fluctuations in exchange rates in 2021. Yongyu Home Furnishing is a foreign trade company engaged in flooring exports. In 2021, affected by the decline in the exchange rate of the US dollar against the RMB , the average sales price of its SPC flooring fell and its gross profit margin declined .

Yongyu Home Furnishing explained that the US dollar-RMB exchange rate has been depreciating since mid-2020, as the epidemic situation in the United States is relatively serious and the US government is implementing loose monetary policies . The average exchange rate of the US dollar against the RMB fell from 689.76 in 2020 to 645.15, a drop of 6.47%.

Exports account for nearly 95% of Yongyu Home's SPC flooring business. In 2021, the sales volume of SPC business settled in US dollars was 18.1087 million square meters, with sales revenue of US$175 million. Affected by the exchange rate, although the US dollar sales price of Yongyu Home's SPC flooring increased slightly in 2021, the RMB sales price decreased instead, which greatly compressed Yongyu Home's profits in 2021.

Due to fluctuations in the exchange rates of the U.S. dollar, euro, and pound sterling against the RMB , Savi also incurred a net exchange loss of RMB 16.166 million in the first half of 2021. Savi said that if there are significant fluctuations in the exchange rates of the U.S. dollar, euro, and pound sterling against the RMB in the future, it may bring uncertainty to the company's revenue and financial expenses, and thus affect the company's operating performance .

This is true for large cross-border sellers, so small and medium-sized sellers must be even more cautious when facing exchange rate fluctuations. It is imperative for cross-border companies to take corresponding measures to deal with the risk of foreign exchange fluctuations during their operations.

In order to reduce the impact of exchange rate fluctuations, cross-border companies can continue to strengthen the analysis and research of exchange rate changes, actively manage foreign exchange risks, adhere to the "risk neutrality" principle, choose appropriate currency quotations, balance foreign currency receipts and payments, and comprehensively adopt foreign exchange hedging and other methods to reduce the adverse effects that may be caused by exchange rate fluctuations.

In its financial report, Savi said that in order to cope with the risk of foreign exchange fluctuations , they have taken the following specific measures :

① Strengthen foreign exchange policy research

The company has dedicated personnel to collect information related to exchange rate changes, closely monitor exchange rate trends, and enhance the exchange rate knowledge level of financial and business personnel; maintain close contact with external financial institutions, strengthen research on international trade and exchange rate policies, and then formulate trade and settlement methods in a more professional and targeted manner.

② Adjust the window period for foreign exchange settlement in a timely manner

Based on the exchange rate fluctuations and fund payment needs, we formulate foreign exchange settlement rules under the advice of professional institutions and strictly implement them with the main purpose of reasonably avoiding exchange rate risks. We adjust the foreign exchange settlement window period in a timely manner to reduce the impact of exchange rate fluctuations on the company.

③ Research and use financial derivatives

Maintain long-term close cooperation with financial institutions, make comprehensive use of financial derivatives, and solidify the exchange costs corresponding to RMB payment obligations in the future through the comprehensive use of long-term and short-term financial products (exchange locks, options), so as to support reasonable pricing of sales centers by fixing costs in advance.

Exchange rate fluctuations are common in the international market, but because their fluctuations have a huge impact on the operations of cross-border sellers, it is very important for cross-border sellers to do a good job in exchange rate risk management and ensure normal production and operation of the company.

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