Incoterms, Payments, & Transaction Risks

Incoterms, Payments, & Transaction Risks
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Incoterms, Payments, & Transaction Risks
Germany’s currency is known as the Euro (EUR, €), and it shares it with 23 other European countries. Currently, 1 EUR = 1.11 USD, and this implies that the Euro has a higher value compared to the U.S. dollar (Ganti, 2019). There are numerous factors that cause the fluctuation of foreign currencies, and this leads to the changes in the foreign exchange rate. For instance, the foreign exchange rate is affected by inflation, interest rates, terms of trade, government debt, recession, political stability, and speculation (Desjardins, 2018. Transaction risk relates to the fluctuation of the foreign exchange rate, and this may have an adverse effect on a transaction that has been completed before settlement. The risk occurs when there is a delay between the moment a contract is made and the time it is settled.
Firms that engage in foreign trade may incur the transaction cost when repat...