Analysis of exchange rates and their impact on pricing and international trade

Exchange rate is a crucial adjustment lever in international trade. Its fluctuations not only affect exports and imports, but are also directly related to the steady development of each country’s economy. Changes in exchange rates will affect merchants’ pricing strategies and the way cross-border e-commerce operates. They need to clarify the following important factors affecting exchange rates.

Factors affecting exchange rates

1. Balance of payments: If a country’s international balance of payments is in surplus, its foreign exchange income will be greater than its foreign exchange expenditure, and its foreign exchange reserves will increase accordingly, causing the country’s supply of foreign exchange to exceed its demand, and the exchange rate may fall. The currency appreciates externally. On the contrary, if a country has a trade deficit, the exchange rate will rise accordingly. Although the U.S.’s huge trade deficit continues to increase, its U.S. dollar remains strong, mainly due to the U.S. dollar’s unique status as the world’s currency.

2. Inflation rate: When the inflation rate of a country is higher than that of other countries, the currency will depreciate, causing the exchange rate to rise.

3. Interest rates: Changes in interest rates will affect the flow of international capital and thus the exchange rate. If a country raises interest rates and the demand for foreign investment increases, the currency of that country will appreciate, resulting in a fall in the exchange rate.

4. Economic Growth Rate: A high economic growth rate usually means that the country has a higher exchange rate, reflecting its economic vitality.

5. Fiscal Deficit: A huge fiscal budget deficit will cause a country’s exchange rate to decline.

6. Foreign Exchange Reserves: High foreign exchange reserves usually boost the country’s exchange rate.

7. Investors’ psychological expectations: The psychological expectations of market participants play a key role in exchange rate fluctuations. Positive psychological expectations will promote currency appreciation.

8. Exchange rate policies of various countries: The central bank strives to balance the supply and demand relationship in the foreign exchange market by coordinating monetary policy and exchange rate policy, thereby ensuring the stability of the domestic currency.

Exchange rate impact in cross-border e-commerce

In the field of cross-border e-commerce, exchange rate changes directly affect pricing strategies. The decline in the local currency exchange rate, that is, the external depreciation of the local currency, is usually beneficial to exports, causing the pricing of export products to be adjusted accordingly. In contrast, the appreciation of the local currency is beneficial to imports, but puts pressure on exports, resulting in the need to appropriately lower the pricing of export products. In the long term, the appreciation or depreciation of the exchange rate provides an important direction for price adjustment, while short-term fluctuations require pricing and pricing validity periods to smooth risks.

In addition, cross-border e-commerce companies need to consider the impact of trade terms when pricing. Different trade terms will affect cost attribution and transaction risks, and companies must make precise adjustments to different pricing strategies. For example, for fragile goods, when choosing two different pricing strategies, FOB and DES, the DES price needs to cover transportation costs and insurance sharing, and foresee losses during transportation.

To sum up, exchange rate and its influencing factors play a decisive role in international trade and cross-border e-commerce pricing. Merchants need to have a deep understanding of these dynamics to make corresponding market strategy adjustments.