Case Study #1 – Textile Manufacturer – Importer of Goods
Company A purchases from China throughout the year, with payments occurring on a bi-monthly basis. Since Company A has revenues in CAD, its current payment process involves a currency conversion from CAD to USD, with the US funds then being sent via wire payment to China.
The CFO has heard from members of his trade association that the RMB is becoming more accessible and is increasingly being used in cross-border trades. He is mindful that he is being charged an inflated USD price by his Chinese suppliers to account for their currency exposure risks. The CFO is eager to explore the possibility of paying his suppliers directly in RMB to ascertain if he can reduce his costs. He approaches his corporate banker to explore options.
The clothing manufacturing sectors represented nearly $3 billion of Canada’s imports from China in 2014, the third highest amount of imports of any sector.
Imports have grown at a compound annual growth rate of 1.67% over the last five years.
Company A takes on FX risk, paying suppliers in RMB, removing FX premium.
Company A purchases using a spot trade or a hedging product.
Company A has been able to establish better procurement terms with Chinese suppliers.
Improved payment flexibility means that Company A can expand suppliers.
Cost savings have resulted in improved competitiveness and customer satisfaction.
Open RMB account in Canada.
Complete bank documentation.
Change internal systems, such as for invoicing, to manage RMB.
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