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If the exporter is selling to a customer in a

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Unformatted text preview: n hedge against this risk by using the currency futures, forward, or options markets, but it is costly to do so, particularly for relatively small amounts. If the exporter is selling to a customer in a developing country—where 40 percent of U.S. exports are now sold—there will probably be no effective instrument available for protecting against exchange rate risk at any price. This risk may be further magnified because credit standards may be much lower (and acceptable collection techniques much different) in developing countries than in the United States. Although it may seem tempting just “not to bother” with exporting, U.S. companies no longer can concede foreign markets to international rivals. These export sales, if carefully monitored and (where possible) effectively hedged against exchange rate risk, often prove to be very profitable. Credit Terms credit terms The terms of sale for customers who have been extended credit by the firm. cash discount A percentage deduction from the purchase price; avail...
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