1. Forward foreign exchange transactions
Forward foreign exchange transactions are the most commonly used and easy-to-operate hedging method for Taiwanese traders. For exporters, in order to avoid future export of goods, their foreign exchange receivables may depreciate relative to the domestic currency, which is before export. First sign a contract with its correspondent bank, and sell its future export bills or collection payments due at the agreed exchange rate. On the other hand, in order to avoid a single foreign exchange settlement, the foreign exchange payable by the importer may appreciate relative to the domestic currency and increase the import cost by signing a contract with the bank in advance to pre-purchase foreign exchange at the forward selling rate.
2. Natural hedging
For some manufacturers, their products must first import core components or raw materials from other countries, and then export them after manufacturing in Taiwan. Their import costs and export prices are quoted in U.S. dollars, and import costs and export sales amounts change in a fixed proportion. If the U.S. dollar foreign exchange source and the used amount can maintain a balance, the risk of exchange rate fluctuations can be completely avoided.
3. Adjust the timeline for the sale and purchase of U.S. dollars
Generally speaking, importers and exporters hold U.S. dollar deposits or asset items receivable or payable denominated in U.S. dollars. It is expected that the appreciation of the New Taiwan dollar can sell or purchase their U.S. dollar positions in advance or later, so as to reduce the value of the U.S. dollar. Exchange rate losses caused by devaluation.
4.futures trading
Foreign exchange futures trading is another type of forward trading. Its delivery time is a certain day in the future, and the price is determined at the time of the transaction. Unlike forward transactions, futures transactions must be traded through market intermediaries, and the contract is standardized , The exchange will check the margin daily, and it must be added when insufficient.
5. Official export financing and insurance
In the medium and long-term export, exporters bear very high exchange rate risks. In order to encourage exports, governments of various countries have also adopted financing and insurance systems to help exporters diversify or reduce risks. Taiwan’s import and export banks and related insurance departments provide export insurance, which can be used by exporters.
