in theCross-border procurementin the operation,The exchange rateVolatility is a regular problem that can have adverse effects on the business.

Assuming that a Chinese company plans to purchase raw materials from the United States, the purchase contract stipulates the purchase amount of $100,000, and when the contract is signed, the exchange rate of the RMB to the US dollar is $1 = $6.8, then the purchase cost is $680,000.

However, as a result of fluctuations in exchange rates, the exchange rate of the RMB to the US dollar may change when the contract is executed. Assuming that the exchange rate changed to $1 = $7.2 before the purchase of goods arrived in China, then the purchase cost of $100,000 would turn to $720,000, an increase of $40,000 compared to the original cost.

In this case, Chinese companies will need to pay higher purchasing costs, which will have a negative impact on their profitability.In addition, if the company does not manage exchange rate risk or does not have sufficient funds ready to cope with exchange rate fluctuations, changes in exchange rates may also lead to problems such as funds tension or failure to pay purchased amounts on time, further affecting business development.

Therefore, in transnational procurement business, it is important to understand and manage exchange rate risk. Enterprises can take a number of measures to reduce the impact of exchange rate fluctuations on business, such as buying exchange rate futures contracts, using expired currencies and other financial instruments. In addition, enterprises can also consider negotiating prices with suppliers and negotiating as stable exchange rates as possible in contracts to reduce exchange rate risks.