Offsetting Imports with Exports
Where a company or group has transactions of exports say in guilders and imports payable also in guilders, it is quite often tempting to try and balance receivables with payables, thus assuming there is no exchange risk. This practice can be very dangerous. It is not so much a question of balancing the imports with the exports but the cash flow that matters. If a company has got to pay guilders today or within the next few days but is not expecting to receive guilders for another three months, then it will merely have to buy the guilders at the spot rate of exchange and of course it has thus incurred the whole of the exchange risk. So, any function which tries to balance exports with imports in the same currency should primarily look at the cash flow position. Nevertheless, having said this, such a company is not getting the best possible result from its transactions.