You have a business based in Australia that has just imported a product from a seller in Mexico. The invoice for this purchase is denominated in Australian dollars (AUD) and must be paid in 30 days. That is, you will pay for your purchase in AUD. Given this arrangement, what is the exchange-rate risk you face as an importer?

Question

BlackTom AI · Accepted Answer

When an invoice is denominated in your domestic currency (AUD) the importer has no transaction exchange-rate exposure on that payable.

1) Relevant concepts:
- Transaction (cash‑flow) exposure: risk that exchange‑rate movements between the trade date and the settlement date change the domestic‑currency cost of a foreign currency–denominated payable or receivable.
- If a payable is invoiced and settled in domestic currency, the importer’s cost in domestic currency is fixed and therefore not exposed to exchange‑rate movements.

2) Step‑by‑step reasoning:
- The seller in Mexico issues an invoice for X AUD and requires payment in 30 days in AUD.
- As the Australian importer you will deliver exactly X Australian dollars at settlement, regardless of what happens to AUD/MXN or AUD/USD rates in the interim.
- Any subsequent change in the AUD/peso rate affects the exporter (who will convert the AUD they receive into pesos), not you. Your AUD outflow remains X AUD.

3) Illustrative calculation (intermediate steps):
- Invoice = 1,000 AUD. Today: 1 AUD = 14 MXN → exporter would get 14,000 MXN if converted today.
- In 30 days: if 1 AUD = 12 MXN (AUD weakened) exporter would get 12,000 MXN; if 1 AUD = 16 MXN (AUD strengthened) exporter gets 16,000 MXN.
- In all cases you still pay 1,000 AUD — your cost in AUD is unchanged.

4) Why the correct answer is correct:
- Because the payable is fixed and payable in AUD, there is no change in your AUD cash outflow due to FX movements; therefore no importer exchange‑rate risk on this transaction.

5) Why other options are incorrect:
- “AUD will weaken/strengthen against peso” options describe risks only when payables are denominated in foreign currency (e.g., MXN) — not applicable here.
- The comment about Mexico bordering the USA and USD exposure is irrelevant and incorrect: geographic borders do not create direct exposure to another currency; exposure depends on invoice currency.

6) Conclusion:
You face no exchange‑rate risk since you make payments in AUD. This matches the provided answer.

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