Foreign exchange rate appreciates by 5 per cent

BY IRANGIKA Range

"THE foreign exchange rate has appreciated by 5 percent in the first half of this year and it is expected to remain stable thereafter in the country" said Central Bank's, Economic Research Division, Deputy Director Dr. P.N. Weerasinghe.

Weerasinghe said this is mainly due to the expectation of inflows for tsunami related reconstruction, rehabilitation and resettlement, continuation of inflow of funds, higher growth in exports than imports and renewed pledge for US$ 3 billion at a seminar on "How do you hedge your exports and imports against currency fluctuations organised by the National Chamber of Commerce Sri Lanka (NCCSL) in Colombo on Wednesday.

"The exchange rate largely depends on the demand and supply of foreign exchange and international trade in developing countries such as Sri Lanka, is the loss incurred by exporters and importers due to unexpected currency fluctuations.

Many exporters and importers have to face this situation in the absence of a proper mechanism to hedge exports and imports against currency fluctuations.

Today, over 60 percent of trade transactions performed on US dollars. Terms of trade shocks, financial flows and market expectations and perceptions are directly affect the fluctuations of exchange rate,"he said.

Central Bank's Additional Controller of Exchange, H.M.P.Herath said that with the removal of exchange control on current transactions and withdrawal of applicability of provisions of the ECA for exports, exporters are free to either repatriate export proceeds to the credit of a rupee account or foreign currency account in Sri Lanka or retain such proceeds abroad in a bank account, provided such monies are not utilised for the acquisition of any property or capital assets outside Sri Lanka.

Exporters and importers should monitor export proceeds and import payments to reduce the risk on their trade," he said.

Head of Treasury Sales of HSBC and the President of Sri Lanka FOREC Association, Kenneth de Zilwa said that the understanding the pay off dynamics and suitability of the hedge exposure is important.

" It is important that clients identify and quality foreign exchange exposure and once identified, clients should develop an understanding of how to manage foreign exchange risk," he said.

Samson Sportswear (Pvt) Ltd, Managing Director, Ranjith Hettiarachchi said that the business community should calculate the risk as a percentage.

Analysis of the floating and fixed foreign currency interest rates, real and projected hedging cost and the change of forex rate and the impact are important to understand the risk of the business.