Supply Chain Management

Assignment 4

Case Study 1 – Purchase as a part of SCM

1) How exchange rate fluctuation affects your purchase cost?

Ans:
Exchange rates have a significant impact on the prices we pay for imported
products. A weaker domestic currency means that the price we pay for foreign goods
will generally rise significantly. As a corollary, a stronger domestic currency may reduce
the prices of foreign goods to some extent. Also the negotiation depends on exchange
rates, suppose for a large quantity we have negotiated a rate for certain commodity in
foreign currency and at the time of payment if the rate of that currency has increased
then the very purpose of negotiation and reducing the cost price would be defeated, on
the contrary if the rate of that currency reduces in terms of home currency then we will
be benefited and the cost price of that commodity will further reduce.

The exchange rate will play an important role for firms who export
goods and import raw materials.
Essentially:
• A depreciation (devaluation) will make exports cheaper and exporting firms will benefit.

• However, firms importing raw materials will face higher costs of imports.
• An appreciation makes exports more expensive and reduces the competitiveness of
exporting firms.

• However, at least raw materials (e.g. oil) will be cheaper following an appreciation.