Currency

Abstract

Payments in international commercial and loan transactions are usually made in one of the major trading currencies that are used globally such as the US dollar, euro, Japanese yen, British pound and Swiss franc. These currencies are also called hard currencies. Payment in other currencies such as the currency of the country of export may be agreed upon if the currency is stable and acceptable to both contractual parties. However, the exchange rates between currencies vary on a daily basis, which may negatively affect exporters and banks in their export credit transactions. Their main concern is the risk of receiving lesser value than expected when payment of a credit is converted into another currency. This risk, also called the currency risk, is higher when a payment of credit is agreed in a local currency, which is the term used for the currency of the foreign buyer’s country. A local currency may be depreciated or devaluated, resulting in a loss for an exporter or bank.