You sell custom-designed refrigerators in Canada. The refrigerators are manufactured in Mexico and it takes about 60 days from the time you agree to a sale and accept payment in Canada until you take delivery of the refrigerator and pay the Mexican firm. Your profit, therefore, is affected by changes in the dollar/peso exchange rate between the order and delivery dates. The following was an example of a short run exchange rate risk.

Question

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This scenario describes a short run exchange rate risk because the profit margin is directly affected by fluctuations in the exchange rate between the Canadian dollar and the Mexican peso over the short period (60 days) between the sale agreement/payment acceptance and the delivery/payment to the manufacturer.

You Sell Custom-Designed Refrigerators in Canada