Rate fluctuations in foreign exchange
A lower-valued currency makes a country's imports more expensive and its exports less expensive in foreign markets. A higher exchange rate can be expected to worsen a country's balance of trade Exchange rate fluctuations affect not only multinationals and large corporations, but also small and medium-sized enterprises. Therefore, understanding and managing exchange rate risk is an important subject for business owners and investors. There are various kinds of exposure and related techniques for measuring the exposure. In short, a forward contract allows you to buy foreign currency at today’s rate, but only actually pay later, so you are locking in the exchange rate of today. If your business is heavily dependent on foreign currencies, this is a pretty good solution to help you lock in a good rate. Forwards can be locked in for up to 2 years.