Turbulent Currency Markets  Managing Exchange Rate Risks

Companies that regularly trade with Chinese partners need professional management of exchange rate risks in order to maintain stable margins. For businesses with a branch or subsidiary in China, hedging through Chinese banks can be an attractive option.

Iran War Moves Currency Markets

The geopolitical tensions surrounding the war in Iran are not only affecting energy prices and international trade routes. International currency markets are also increasingly in motion. This is currently particularly visible in the relationship between the euro and the Chinese renminbi (RMB).

According to market observers, the Chinese government is attempting to offset at least part of the sharp rise in oil and gas prices by allowing its currency to appreciate. A stronger renminbi can help make imported energy cheaper and thus reduce the economic pressure on China.

For European companies, however, this development has immediate consequences.

Euro Loses Around Five Percent Within a Few Days

Within a short period of time, the euro has lost around five percent of its value against the renminbi. The exchange rate moved from roughly 8.3 RMB per euro to about 8.0 RMB per euro.

For many European exporting companies, such a movement can already erode a significant portion of their profit margin. Companies with long‑term supply contracts or with prices originally calculated in euros are particularly affected.

Currency Hedging Becomes a Key Issue for Companies

Against this background, the question of currency hedging is increasingly coming into focus for import and export companies. In Europe, however, this instrument is often regarded as complex and relatively expensive.

Banks often charge commissions of two to three percent of the hedged amount. In addition, many institutions require a security deposit (“deposit”), which can often amount to 25 percent or more of the hedged amount.

Another problem is that many hedging models are date‑specific. This means that a certain amount can only be hedged for a precisely defined settlement date.

For many import transactions this is problematic, since in practice companies often have to settle several invoices in Chinese RMB at different points in time.

Advantages of Hedging via Chinese Banks

For companies with a branch or subsidiary in China, however, alternative options exist. Some banks in China offer currency hedging with significantly lower fees—often between nearly zero and a maximum of 0.1 to 0.2 percent of the hedged amount.

In addition, these models are often period‑based. Within a predefined time period—for example two months—companies can flexibly use partial amounts from the hedged sum to settle several invoices.

For companies that regularly trade with Chinese partners, professional management of exchange rate risks therefore becomes a decisive factor for maintaining stable margins in international business.

If you have questions about hedging currency risks in trade with China, please feel free to contact us.