When a US exporter have a transaction exposure, does it mean that its counter-party have no transaction exposure?
US exporter exported his goods to another country. He expects to be paid with a foreign currency. expects say 100$ in today’s exchange rates of 1.5 PIF/. So receiver of goods would spend 150 PIF. Now say PIF instead becomes 1.2 PIF/ (PIF appreciated, depreciated). To pay the US Exporter 100 now receiver of goods needs to spend only 120 PIF. So the Receiver (Counterparty) benefits because the US$ depreciated/PIF appreciated.
CP do you type in the CP at the end of all of your messages? I have wondered that for years
no - it is set up as a signature.
deriv108 Wrote: ------------------------------------------------------- > When a US exporter have a transaction exposure, > does it mean that its counter-party have no > transaction exposure? Well, it all depends on where the exchange rate ends. 
Thanks, CP. If the two parties agree to use 100$ as contract price, then the foreign importer will pay 100$. In this case, the US exporter bears no exchange risk, but the the foreign importer does. If the two parties agree to use 150PIF as contract price, it looks like the foreign importer bears no exchange risk. It pays in its local currency. I’m confused by myself.
between the time the contract is signed and the contract is completed - any change in exchange rate causes transaction risk. An Exporter would be paid in the foreign currency, and convert the same on his books to the local currency. (This was incidentally covered in the FRA chapter on Foreign Multinational accounting). Exporter signed up a contract expecting to receive a 100$ on his books, at the contracted rate of 0.8$/PIF. (So recipient of goods would pay 125 PIF). Now if the rate goes up to 0.9 /PIF ( depreciated, PIF appreciated) he would receive only 111 PIF - which is a loss of 14 PIF for the exporter.
“a contract expecting to receive a 100$ on his books, at the contracted rate of 0.8$/PIF.” Does it mean that the importer has to pay 100$, or pay 125PIF but at a rate of 0.8$/PIF, or pay in PIF worth 100$? If yes, the exporter will receive 100$ or 111PIF=111PIF*.9$/PIF=100$. In USD, the exporter gets his 100$. It seems no exchange risk.
deriv108 Wrote: ------------------------------------------------------- > “a contract expecting to receive a 100$ on his > books, at the contracted rate of 0.8$/PIF.” > > Does it mean that the importer has to pay 100$, or > pay 125PIF but at a rate of 0.8$/PIF, or pay in > PIF worth 100$? > > If yes, the exporter will receive 100$ or > 111PIF=111PIF*.9$/PIF=100$. In USD, the exporter > gets his 100$. It seems no exchange risk. Over here since, the US exporter gets his $100 he faces no exchange rate risk. However the importer faces the risk. In other words, the US exporter has no exposure at all IF he is getting the money in dollars
clearly, Idreesz has explained it, it all depends on the agreed currency. Only one party will have transaction risk if the currency of the counterparty is the agreed trade currency.
idreesz Wrote: ------------------------------------------------------- > Well, it all depends on where the exchange rate > ends. Now I got it. 
Thank you all.