My trading partner deals in a foreign currency, what happens if the exchange rate fluctuates?
Depending on the terms of your agreement, the fluctuation could result in a financial loss to you. For example, if you buy an item from a supplier in a country with a currency that is gaining strength, and you agreed to pay in Canadian dollars then it might cost you more to purchase the item. Also, if you sell an item to a country where the currency is weakening and you agree to receive payment in that countries currency then by the time you receive payment it will translate into fewer Canadian dollars. This risk can be managed with some deal structuring and interest rate hedging.
