Currency Exchanges Currency Exchanges

and and

Trade AgreementsTrade AgreementsBy Senta SchreiberBy Senta Schreiber

Students will develop an Students will develop an understanding of how currency understanding of how currency exchange rates and trade agreements exchange rates and trade agreements affect buying power and simple rules affect buying power and simple rules of country of origin.of country of origin.

Personal Purchase Personal Purchase ScenarioScenario

On a trip to Europe while On a trip to Europe while shopping for the same pair of shopping for the same pair of

shoes in England and shoes in England and GermanyGermany. I encountered a

challenge.

£39.95 GBP €39.95 EUR

United Kingdom Germany

£1.00 GBP = $1.97369 USD

€1.00 EUR = $1.58206 USD

If the shoes were purchased in England the cost of the shoes converted to USD would be $78.85.

If the shoes were purchased in Germany or other parts of Europe the price would equate to $63.20 USD.

How much more would you have paid for the shoe if you had purchased them in England?

Is currency exchange rates something you would have considered before planning a vacation?

How many different dollars exist in the world?

Why is it important to check the type of currency on an invoice?

When you receive a commercial invoice always check to see what currency type is stated on the invoice.

If the currency type is not listed you must request the currency type from the vendor or supplier or manufacturer.

Manufacturer/Shipper 567 Main St, Hong Kong, HK

Invoice No. 123456789

Invoice Date: 9.4.08

Bill To: Ship to: Importer of Record:

Company A Company A Company A

123 Main St, Chicago, IL 60666 123 Main St, Chicago, IL 60666123 Main St, Chicago, IL

60666

847-555-5555 847-555-5555

Date Description Qty C/OPrice in

USDTotal

USD

9.4.08 Widgets 5000 CN $1.00 $5,000.00

Total $5,000.00

Freight $2,500.00

Total CNF $7,500.00

Commercial Invoice

USD - United States DollarAUD - Australian DollarCAD - Canadian DollarHKD - Hong Kong DollarNZD - New Zealand DollarSGD - Singapore DollarBSD - Bahamas Dollar

BBD - Barbados DollarBMD - Bermuda DollarFJD - Fiji DollarJMD - Jamaica DollarTWD - Taiwan New DollarTTD - Trinidad & Tobago DollarXCD - Eastern Caribbean Dollar

How does currency How does currency exchanges rates and Trade exchanges rates and Trade

Agreements effect a Agreements effect a company’s purchasing company’s purchasing

power?power?

Company A wants to purchase Widgets either from Germany, Singapore, China, Australia or

Israel.

Which country would have the best price after all fees and taxes are figured, given quality of productions is the same?

Do you think it is going to be Germany, Singapore, China, Israel or Australia?

Country Germany Singapore China Israel Australia

Unit Price 1.50 1.20 1.00 2.00 2.00

Currency Type Product sold in EUR USD USD USD AUD

Number of Units 5000 5000 5000 5000 5000

Exchange Rates 1.58206 1.00 1.00 1.00 0.929793

Cost on Commercial Invoice in USD $11,865.45 $6,000.00 $5,000.00 $10,000.00 $9,297.93

Trade Agreement No Yes No Yes Yes

Duty rate 5.80% 0.00% 5.80% 0.00% 1.40%

Duty $688.20 $0.00 $290.00 $0.00 $130.17

Merchandise Processing Fee $25.00 $25.00 $25.00 $25.00 $25.00

Harbor Maintance Fee $14.83 $7.50 $6.25 $12.50 $11.62

Anti-Dumping Rate if Applicable 3.06% 1.62% 60.95% 0 0

Anti-Dumping $363.08 $97.20 $3,047.50 $0.00 $0.00

Freight cost and Insurance $1,500.00 $2,000.00 $2,000.00 $1,500.00 $2,500.00

Total Cost of Goods $14,456.56 $8,129.70 $10,368.75 $11,537.50 $11,964.72

Cost per unit $2.89 $1.63 $2.07 $2.31 $2.39

Are you surprised that the best value is with Singapore?

Did you assume it was going to be China?

The really key factors here was the trade agreements and anti-dumping.

Country Germany Singapore China Israel Australia

TradeAgreement N/A Yes No Yes Yes

Duty rate 5.80% 0.00% 5.80% 0.00% 1.40%

ADA Rate 3.06% 1.62% 60.95% 0 0

ADA $ $363.08 $97.20 $3,047.50 $0.00 $0.00

Duty rates are based on:

• What the item’s end use is?

• What the item is made of?

• What the country of origin is?

However, just because an item is shipped from a country does not mean that it is from that origin.

For example:• Parts are shipped

from China to Australia

• In Australia the parts are assembled into a unit.

• Then shipped to Japan and packaged

• Then shipped to the U.S.

Since the parts are Since the parts are assembled into a assembled into a new product the new product the country of origin country of origin

is Australia.is Australia.