Foreign Exchange

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Olaf Meyer's article (Financial Tactics, September) hit the mark in giving those unfamiliar with foreign currency mechanisms a brief primer. Flowever, examples were oversimplified.

Milgray Electronics's approach, which is to absorb foreign currency fluctuations of 5%, has merit if the time between fixing payment and collecting payment is short. The reason for keeping this interval short is that elaborate arrangements may have to be negotiated to cover currency moves outside the limits set because increases (or decreases) represent expected gains (or losses) of profits on the sale.

Recently, the foreign exchange markets have become more volatile because of general international economic conditions, so wider swings in the value of a currency over a shorter period are becoming common. The larger the limits allowed for foreign currency fluctuations, the more the selling price must be increased to maintain the expected profit. This may not be possible in a competitive situation.

The best advice, when you have foreign exchange exposure (when you are in a position to lose or gain money by the change of value of foreign currency), is to keep the time as short as possible between setting the price and getting the money and to get professional financial advice, first, before agreeing to anything.