Following the gains and dips in the currency market is a bit like trying to keep an eye on your best friend as they ride the Fahrenheit roller coaster in Hershey Park. Neither is very easy, you're always a few seconds behind, but watching it is a lot easier on the stomach than living it.A quick glance at the headlines from the past 24 hours indicates the international currency markets are alive, on the move, and dividing their constituents.
For months, China has been criticized and warned for a perceived significant undervaluing of their currency, and the matter may have come to a head:
Pressure Mounts on China as Yuan Hits New High
After unavailing efforts to pester China on their undervalued currency, today one country took matters into their own hands:
Soros Applauds Japan Intervention to Weaken Yen
Another country takes a different approach:
US Sets Steep Duties on China Seamless Steel Pipe
But China may refuse to be so easily bullied:
Trade War: China Fires First Shot, Hints It Might Dump US Bonds
Whether or not it all eventually gets sorted out peacefully, the markets have immediately responded:
Dollar Soars as Japan Acts to Curb Yen's Strength
And some are jealous at their lack of benefit:
EU: Yen Intervention More Effective If Coordinated
Obviously, reading just the headlines, although it tells an interesting story, over simplifies it a bit. Being able to accurately hedge on exchange rates is an art, a science, or a crapshoot, depending on who you ask. Either way, purchasing professionals will be forced onto the roller coaster ride, as their organizations continue to expand into global markets. The most informed will face the currency markets and choose a wise course of action as they attempt to maintain profit margins in exchange rate fluctuations.
Sample Test Question: Task 1-B-5
The most effective way to maintain the profit margin in exchange rates when making a purchase is to:
A) Negotiate the contract to purchase in the supplier's local currency
B) Negotiate the contract to purchase in the buyer's local currency
C) Hedge on the exchange rate
D) Hedge on the exchange rate or negotiate the contract to purchase in the buyer's local currency
