Hard and Soft Currencies

According to John Leslie Livingstone in The Portable MBA in Finance and Accounting (1997), when a company exports goods one of the risks the company must address involves foreign exchange rate fluctuations. One way to avoid exchange rate risk is to require payment in advance. The problem is that requiring cash in advance tends to reduce sales. Another way to address foreign exchange rate risk is to require the buyer to remit payment to the seller in a hard currency such as the U.S. dollar. When the seller's invoice is denominated in the buyer's currency, either the buyer or seller can incur addi

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o so is to find a speculator willing to buy the soft currency at a steep discount. A soft currency buyer may do so as a form of speculation about the relative value of the two currencies. According to Marjorie Dyrnes in Principles of Business Credit (2003), a common problem in managing currency risk is that many exporters only recognize they have a risk after the sale has taken place and there is little or nothing that can be done about foreign exchange rate risk. Risk management should be proactive. This process should begin by determining the terms of sale to be offered to the buyer followed by a decision about which currency to accept as payment. One of the simplest ways to manage risk is to require payment from the buyer in a hard currency. According to Dyrnes, exporters often go to great lengths to manage credit risk - both commercial risk and sovereign risk. Exporters may spend significant amounts of time, energy and effort evaluating credit risk and looking for ways to control this form of risk while at the same time investing almost no time, energy or effort before the fact in determining the convertibility of the buyer's currency or taking steps to determine foreign exchange rate volatility if they elect to accept pay
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Some common words found in the essay are:
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Approximate Word count = 1306
Approximate Pages = 5 (250 words per page)

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