States, but it’s a vulgar sexual invitation in Greece and Turkey.
Noting currencies and exchange rates: Financial conditions
Values of currencies do not remain fixed – they change, sometimes rapidly, as currencies are traded in the world’s financial centers. Fluctuating currency values can result in major losses if a currency trader’s timing is wrong, so you need to have a keen awareness of exchange rates and use them as a factor in deciding when and where to do business.
Make sure you’re able to read and understand foreign exchange quotations and to recognize and understand currency exchange risks. Many newspapers list the foreign exchange table in their finance sections. You may see a quote like the one in Table 1-1.
Table 1-1 An Example Currency Quotation
The table shows that at close of business on Monday, the British pound cost in U.S. dollars was 1.8412, and at the same time on Friday, the pound cost in U.S. dollars was 1.8498. The table also shows that at close of business on Monday, the U.S. dollar was valued at 0.5431 British pounds, and at the same time Friday, the U.S. dollar was valued at 0.5406 British pounds.
Suppose that 1 U.S. dollar equals 100 Japanese yen. If you sell an item to a client in Japan for US$10,000, the item would cost the client in Japan ¥1,000,000. If the rate of exchange fluctuates to ¥125 to the dollar, the same item would now cost your client ¥1,250,000.
In this example, the dollar is getting stronger. It’s making your product more expensive and, hence, more difficult for you to export. On the other hand, a strong dollar enables you to import more goods, because the dollar has a stronger buying power.
Also check out www.fita.org/converter.html, which offers daily exchange rate quotations between more than 120 currencies. The rates, which are provided by Reuters, are updated at about 5:00 p.m. Eastern Time (U.S.).
Chapter 2
Figuring Out Your Role in the Import/Export Business
In This Chapter
▶ Looking at why you want to get involved in import/export
▶ Explaining trade agreements and their impact on business
▶ Going global with your small business
▶ Determining how much money you need to invest
▶ Figuring out how much money you can expect to earn
People get involved in international trade for a variety of reasons:
✔ Foreign goods are everywhere. Next time you’re in a store, take a look around: Almost everything is made overseas. Looking overseas can help your business be more competitive.
✔ The U.S. dollar is weak. The value of the dollar is (as of this writing) at a very low point, and a weak dollar is positive for exports because it makes U.S. products cheaper in foreign markets.
✔ The U.S. dollar is strong. The dollar has been very strong in the past, and it’ll likely be strong again in the future. When the dollar is strong, that’s a plus for imports because it makes foreign products cheaper in the United States.
✔ What happens in one part of the world has an immediate impact on the rest of the world. Technological advancements, advancing economies, and trade agreements have combined to make this the case.
In this chapter, you identify why you’re interested in import/export, see what you can get out of adding import/export to your business, and determine the costs – and rewards! – that you can expect.
The Benefits of Import/Export
Existing businesses go abroad for one or both of the following reasons:
✔ To increase profits and sales
✔ To protect themselves from being eroded by competition
Some businesses make their initial entry into a foreign market by exporting. Then they set up foreign sales companies. Finally, if the sales volume warrants it, they establish foreign production facilities.
Other businesses decide to get involved in importing to take advantage of lower manufacturing costs, to protect themselves from lower-priced imports being sold in the U.S., and to remain competitive with other companies that do business in the U.S.
In this section, I cover the benefits of going global with your existing business.
Increasing sales and profits
Managers are under constant pressure to increase sales and make their companies more profitable. After a while, most businesses reach a point where they can only sell so much – the market is saturated with the product. When a business reaches this point, it needs to look for new people to sell its products to. Businesses often begin looking for ways to sell their products overseas.
You can earn greater profits either by generating additional revenues or by decreasing your cost of goods sold. Exporting gives you the opportunity to increase sales and generate additional revenues, and importing gives you access to low-cost sources of supply.
Taking advantage of expanding international economies
New foreign markets are appearing and, in some instances, are growing at a faster rate than U.S. markets. Today, U.S. businesses are seeing increases in exports to developing countries, especially in Latin America, Central Europe, Eastern Europe, the Middle East, and Asia. Companies also go overseas to obtain the lower manufacturing costs available in nations with expanding economies.
