How to Manage the USD to RMB Exchange Rate in International Trade

Managing the “USD to RMB” exchange rate in international trade involves a number of aspects, including exchange rate monitoring, risk management, and choosing the right trading instrument. Before we go into the specific strategies and recommendations, let's first look at the risks that companies may encounter when converting USD to RMB currencies:

 

Risk Type	Description
Transaction Risk	Due to the fluctuation of foreign exchange rate during the transaction period, the exchange rate at the time of contract signing is not consistent with the exchange rate at the time of actual settlement, thus affecting the profit.
Exchange rate risk	An enterprise is required to exchange foreign currency assets and liabilities into RMB in its financial statements, and exchange rate fluctuations may lead to fluctuations in the value of assets and liabilities on the statements, which may affect the financial position.
Economic risk	Exchange rate fluctuations may affect the enterprise's future cash flows and profitability, especially in the case of long-term contracts and significant changes in the external market environment.
Policy Risk	Changes in government policies (e.g., foreign exchange controls, interest rate adjustments, etc.) may affect the exchange rate trend and increase the uncertainty of the business.
Credit Risk	When engaging in foreign exchange transactions, the counterparty may not be able to fulfill its contractual obligations, resulting in losses.

After learning about risks, let's take a step further to introduce how to manage these risks.

Ⅰ. Exchange rate risk management

Cross-border payment involves the conversion of different currencies, and exchange rate fluctuations may have a large impact on transaction costs. Enterprises can take various measures to manage exchange rate risks:

1. Real-time exchange rate tracking: 

Enterprises can choose to sign forward foreign exchange contracts with banks or professional financial institutions to lock in future exchange rates; or choose payment platforms that provide exchange rate risk management services, and utilize their professional tools and strategies (e.g., XTransfer's exchange rate query tool) to reduce losses from exchange rate fluctuations. You can also use financial market applications or websites (e.g. Bank of China, Investing.com, etc.) to monitor changes in the exchange rate between USD and RMB in real time. This helps to grasp the market dynamics in time and make better decisions.

2. Intermediate price reference:

Pay attention to the release of the RMB exchange rate intermediate price to understand the trend of the official exchange rate. The median price is calculated by the Exchange Center based on market supply and demand and changes in the exchange rates of major international currencies, and can be used as an important reference.

 

 

Ⅱ. Choosing the right tool

Cross-border B2B trade should not only consider the payment process, but also pay full attention to the impact of international policies on international currencies, which may directly affect the RMB exchange rate. For example, interest rate adjustments, changes in monetary policy, etc. may lead to exchange rate fluctuations. This is when choosing the right platform is particularly important.

1. Use professional platforms:

Choose online remittance platforms like Wise or XTransfer, which usually offer better exchange rates and lower fees, suitable for enterprises that frequently conduct international transactions. XTransfer, as a cross-border financial services platform, provides professional risk control services to help enterprises receive payments and settle foreign exchange in cross-border trade.

2. Banking services:

Take advantage of the foreign exchange services provided by large banks, especially the specialized products for foreign trade enterprises. Banks usually provide more flexible settlement methods and professional advice to help enterprises carry out effective exchange rate management.

III. Use of financial instruments

1. Forward foreign exchange contracts:

Enterprises can sign forward foreign exchange contracts with banks to lock in the USD-RMB exchange rate at a certain date in the future, so as to avoid the uncertainty caused by exchange rate fluctuations.

2. Foreign exchange options:

Through foreign exchange futures, options or swaps and other financial instruments for risk hedging, enterprises can buy or sell dollars at a predetermined price at a certain time in the future, to protect themselves from the impact of unfavorable exchange rate fluctuations.

3. Foreign exchange hedging: 

It can protect the enterprise from losses caused by exchange rate fluctuations. For example, it is possible to reduce risk by locking in future exchange rates in anticipation of RMB depreciation.

4. Currency Swap:

For long-term foreign exchange risk management, by entering into a currency swap agreement with a bank to convert U.S. dollar-denominated debt or assets into RMB, locking in future debt service or transaction costs.

5. Diversify transaction time:

Spread out large transactions to different times to reduce exchange rate risk at a single point in time. This strategy can help companies obtain better average exchange rates under different market conditions.