Dealing with Transaction Risk in a Renminibi Contract

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Dealing with Transaction Risk in a Renminibi Contract

You are the finance manager of a U.S Multinational that has sold US $6 million of high tech product to Chinese importer. Because of stiff competition for the contract with the European and other US –based contract, you agreed that the negotiator could sign a renminibi-based contract although this is not standard practice for your firm.

The sales contract calls for the Chinese importer to make three equal payments at 6, 12, and 18 months from the date of delivery, which is in 60 days. Your plan is to translate the renminbin to dollars on their receipt; your company has no operations in China and no need for Chinese currency. You realize, though, that this arrangement incurs transaction exposure. How could you cover this risk?

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