The impacts of the exchange rates on international businesses

Following the US dollar fluctuations has become a routine in the life of any professional that acts in the foreign trade area, particularly if this specialist’s international transactions involve the Brazilian territory.

Speculations destabilize the market, slow the flow of buying and selling down and make buyers lost, without knowing in which direction to go. How importing from markets where the currency is so devalued? How to make a sale to the foreign market in this current economic environment? These are questions that dominate the current scenario.

 

How does the US dollar affect economy?

Understanding how the US dollar affects the economy is a crucial point because this is the currency that will be taken as a reference in commercial transactions.

It is assumed that the US dollar will affect all the other currencies and, thus, that its drop or its increase shall set the shape of the rest of the market. When the US currency is valued against the Brazilian Real it is the time to invest in sales to the international market and when the US dollar devalues, it means the moment is favorable for buying from foreign markets.

 

We can deduce from this that, to the exporter, it is beneficial that the Brazilian Real is devalued. With the current volatile market, with the Brazilian currency devalued, exporters can negotiate and put a better price on their products, to the extent that, in Brazil, the foreign currency will be worth more on par with the Brazilian currency. In plain language, the US dollars will render greater purchasing power to exporters that will receive payments in US dollars and reverse their profit in Brazilian Reais. The importer, in turn, will be able to acquire a product with a value below his/ her local currency.

Currency exchanges as Brazilian’s main ally

Currency exchange rates variations can be attractive to buyers who want to invest in Brazil, especially for importers who want to invest in cellulose, on the footwear and on the textile sectors. The input becomes so competitive to the point that it can be considered equivalent to the Asian market. Although the workforce can be more expensive compared to other foreign markets such as China and India, for example, thanks to the strength of the United States dollar and the devaluation of the Brazilian Real, the price of the final product is an advantage in foreign markets.

In June 2016 Brazil reached a deficit of 2.479 million dollars. The Central Bank predicts that, by the end of the year, this deficit will be of about 15 billion dollars in transactions. However, with a trade balance governed only by exports, we may have an economic imbalance, as foreign capital enters, but few inputs are purchased by imports.

Both exporters and importers expect a balance, but very pessimistic hopes are being observed throughout the months of 2016. We must be attentive to the movement of foreign exchanges and set a pugnacious behavior in order to make it possible to design the monetary scenario, based mainly on the US dollar, the currency that governs all the monetary policy, and hope that, this way, it will be possible to expand business and have purchasing power abroad.

The advantages of working with Trading Companies (TC)

Trading Companies are enterprises specialized in export and import operations. These types of firms have the infrastructure to facilitate businesses between the selling and the buying companies.

Playing the role of intermediators, the trading companies are seen as an opportunity, mainly, by small and medium domestic producers, which, in most cases, do not have bureaucratic knowledge, time nor structure to carry out foreign trade operations.

There are many advantages on using the foreign trade services that the trading companies offer, such as:

  • the relationship between the manufacturer and the purchaser;
  • insurance of the goods and the services provided;
  • contracts;
  • financial assistance;
  • supply chain;
  • businesses, tax and customs managements.

For been specialized on the foreign trade sector, the Trading Companies have more expertise on these type of transactions than the manufacturer or the purchaser themselves, once They do not only focus on the buying and the selling of goods. International businesses involve much more than that, for example: tax benefits (exempting, reducing or taking credit for some taxes using logistics strategies).

There are several logistical strategies that can be planned by the trading companies, among them are: analyzing through where the goods will transit to get to its final destination and identifying which country is more profitable to negotiate with, considering that there are many global treaties, such as the Southern Common Market (Mercosul) and the European Union (EU), to facilitate the free trading among member countries.

For both the buyer or for the foreign manufacturer, the advantages of working with the Trading Companies are seen as real business opportunities when you do not know directly buyers, domestic producers or manufacturers.

Many brands from the automotive import into the national local market through Trading Companies. The most common services for this segment are: importation on behalf of third parties and importation under order.

 

Importation on behalf of third parties

The client hires a trader or a company specialized on importing transactions to perform, along with the customs authorities, all service related to the importing of their goods. Inside this category, other services can be included, such as: financial transactions and commercial management (article 1 of the IN SRF No. 225/02 and article 12, § 1, I, of the IN SRF No. 247/02).

 

Importation under order

The trader or the company specialized on importing transactions plays the role of a buyer in this service segment. These types of companies’ functions are purchasing goods abroad and carrying out all the bureaucratic issues required by the customs authorities to, later, resell them to the final client. (Art. 2, § 1, I, of the IN SRF No 634/06)

The advantages of using the Trading Companies services are numerous. It is up to the client to analyze and decide which method of export or import is more appropriate to his/ her business.

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