Why Entrepreneurs Need to Pay Attention to Currency Prices

As a successful entrepreneur in The Philipines, you will likely engage with the import/export market. Perhaps you’re a producer who exports products to neighboring markets such as Thailand or China or even further afield. Maybe you’re a restaurant or resort owner who important foreign foodstuffs and luxury goods for your local clientele.

Whatever the reason, it is essential that you are paying close attention to currency prices and have a solid understanding of how they affect your business model. No matter the size, scale, or industry that your business is in, here is everything you need to know about currency prices. 

Currency fluctuations impact overseas pricing

As explained in this handy US Trade Department guide for exporters, currency prices have a significant impact on how you can and should price your products for overseas markets. You want your exports to be competitive on the global market and in the domestic target market. To do this, you need to consider local currency exchange rates.

For example, let’s say you buy your products in dollars and sell them in the Philipines, where the local currency is the Peso. If the value of the Peso declines against the dollar on the forex market, customers in the Philippines will pay more, since their money is literally worth less. Always keep an eye on currency fluctuations to see if you need to adjust your pricing to keep it competitive.

Currency prices affect how much you pay for goods

If you are an importer or you need certain goods or parts from overseas for your business, currency prices are crucial. Let’s go back to the example of the restauranter. Let’s say you operate a fancy French restaurant in Manila, and you need to buy a fixed amount of brie every month for your clientele. You might need to import 100kg of brie per month, at a wholesale cost from your French supplier of €1400.

Since your income is in pesos, this might come out at 80,000PHP. Now, let’s say the price of the peso relative to the euro falls on the global market. The price of brie remains the same, but the amount of pesos you need to purchase that same amount of brie has just gone up, as €1400 now costs 84,000PHP. This is how currency prices can quickly impact your bottom line.

Forex markets affect currency prices

It is also important to have an understanding of the forces that can affect currency prices on a daily basis. For this, we need to get into the mindset of a currency trader, or forex trader. Forex traders move around $5 trillion worth of currencies through foreign markets daily, with the composition of these transactions have a significant impact on prices. Popular FX trading platforms such as Infinox allow anyone to buy and sell currency pairs on the global marketplace. Meanwhile, those same tools can also be used by entrepreneurs as an educational resource to learn currency price patterns and understand what makes currencies lose and gain value against other currencies.

If there is strong demand for a particular currency on the forex market, such as the US dollar, investors and traders will pile into it. This will push the value of the dollar up, making things more expensive for entrepreneurs that import from the US, for example. 

Currency prices impact your credit and debts

This is usually not much of a problem for smaller and medium-sized companies, but it can play a substantial role in the finances of large multinationals. If a company holds debts in a foreign currency, changes in the value of the local currency can impact the size and sustainability of those debts. Let’s say a company has a substantial amount of debt held by a US bank, denominated entirely in dollars.

That company might be largely based in Canada and earn its revenues in Canada in Canadian dollars. It will therefore be using Canadian dollars to service dollar debts. If the value of the dollar rises against the loonie (as the Canadian dollar is called), then you will need a greater amount of loonies to service the same amount of dollar debt. This is how currency price fluctuations can make debts more expensive for some companies. 

As a business owner, currencies matter. Keep these important factors in mind if your company has any form of international focus.