Ranjit is sourcing security clothing and PPE from overseas suppliers. He wants to remove foreign-exchange fluctuation risk and has asked suppliers to quote in GBP. Will this remove the fluctuation risk for the hospital?
A.
No, as the value of the supplier’s currency may decrease
Setting the contract currency to the buyer’s currency transfers FX exposure to the supplier. The buyer gains price certainty in GBP, although the supplier may price in a risk premium—a common application decision when negotiating internationally.
[Reference: CIPS L4M5 (2nd ed.), LO 1.2 – Application issues in commercial negotiation (international sourcing, payment/contract currency, risk allocation)., ===========, ]
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