Who Bears the Currency Risk? A 5% Rate Move Can Eat a Quarter of Your Margin

A contract in euros, sales in dinars

You contract your purchases in euros or dollars and sell in dinars. Many distributors do not think about currency risk until the rate jumps sharply, and by then the contract is often not easy to change.

If the contract does not define who bears the difference caused by a rate change, you will very likely bear it, depending on the contract and the applicable rules.

What it looks like in numbers (an imagined example)

Imagine a purchase of €100,000 at a rate of 117 dinars per euro and a selling price fixed in dinars that gives a 20% margin on the purchase value. The purchase value is 11,700,000 dinars, the sale is 14,040,000 dinars and the margin is 2,340,000 dinars.

If the euro rises by 5% by the time you pay (to about 122.85 dinars), the purchase value becomes 12,285,000 dinars and the margin only 1,755,000 dinars.

Same deal, same goods, same customer: 585,000 dinars less, which means a quarter of the margin disappears because of a 5% rate change.

For your own case, take the figures from your contracts.

Questions to Check Before Signing

These are not ready-made contract clauses or legal advice, but questions worth thinking about before you accept the terms. The exact wording depends on your contract and the applicable rules.

In which currency is the purchase price, and in which is the selling price to your customers?

Which exchange rate is used for settlement (on the order, invoice or payment date), and whose rate is it?

How long does it take on average from ordering the goods to collecting from the customer?

Can you pass the exchange-rate difference on to customers, and do your existing contracts allow it?

How big a margin drop can you absorb before the deal becomes a loss?

If you are not sure who bears the currency risk in your contract, describe your purchases, prices and payment terms to us. You will get a structured report with risks and options.

Prepare questions before making a binding decision

Expert Consilium helps you examine business assumptions, risks and options before you make a decision. A business analysis of the terms shows what they mean for price, risk and flexibility.

Contact us: office@expertconsilium.com | expertconsilium.com

Informational business article. It does not constitute legal, tax, accounting, investment or other regulated advice.